Smart Tips For Uncovering Exchanges

Important Things You Must Know About 1031 Exchanges

Tax nerds could actually tell you a whole lot of info about Internal Revenue Code Sections but most people could never get more than 401(k). (As you may have already figured it out, your workplace retirement savings plan is actually named after a particular section in the tax code.)

So the question here is what do they mean by 1031? When you talk about 1031 exchange (also termed as like-kind exchange), it is the swapping of one business asset or investment asset for another. Although you might have known of most swaps being taxable as sales, if the exchange is within 1031, you will either be required to pay limited tax or you may actually have no tax at all at the time of the exchange.

With this, you may now change the form of your investment without you having to cash out or recognize a capital gain. That is how you can continue to grow your investment tax deferred. The best thing is that you don’t have to worry about how many times can you do a 1031 because there’s actually no limit to it.

However, you also need to be aware that the process involved in doing a 1031 is complicated in a whole different level which is why it is necessary for you to get yourself some professional help. If you’re considering doing a 1031, or you’re simply curious about it, here are the things that you should know.

1031 Exchange Is Not For Personal Use

You should know that this is for investment and business property only, which would mean to say that there is no way for you to swap your primary residence with some other home. There may be ways for you to use a 1031 in a way that you can swap vacation homes, but even so, it could be very limited in a way that the process might be tricky.

But there are personal properties that may qualify

Most 1031 exchanges are dealing with real estate. But you can also say that some exchanges may also deal with some personal properties (eg painting).

There is a broad meaning when you say “like-kind”

Most of the exchanges done is of “like-kind” which may not actually mean what you supposedly think it means. With this exchange, you can actually exchange a ranch for a strip mall, or even an apartment building for a raw land. The rules here are not that limited to a specific meaning. But again, there could be traps everywhere if you proceed without an expert helping you.

There is no problem with doing a “delayed” exchange”

When it comes to exchanges, it will involve swapping of one property for another which involves only two people. But the truth is that it could be quite difficult to find another person who has that very property you want to swap for, who also wants the exact property that you currently have.

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