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Some Things about 1031 Exchange Property Tax You Need to Know

Because most home owners and other businessmen are too busy doing the buying and selling of property, the benefits of getting a 1031 exchange that IRS offers is not being considered. The primary focus of this article is to provide you with the basic information that would help you in achieving the benefits and all that the 1031 exchange property can offer for your advantage.

Usually, the concerned authorities who buy and sell real estate use their profit in various means or they sometimes even save them for purposes other than they need now. What they do not know is that they can actually use their profit to buy another real estate but this time, with the use of the 1031 exchange so as to avoid the other sales that the IRS can tax.

Another name for the 1031 exchange is the tax deferred exchange. This is usually part of the strategies employed by the investors from the real estate. The process works like this: you will buy a real estate that is qualified and with the profit you made, you need to buy or exchange it for another property within a given time period. The transaction is more of making an exchange that actually the buying and the selling of real estate.

People sometimes question this process because some think that it is illegal or unlawful to practice such acts. What they do not know is that this method is approved of by the law. There are even various laws and regulations that would protect you if you make use of the exchange. Tax liability is specified in the policies within the exchange in the case of violations and other problems that may happen when practicing the exchange.

Similarity of properties you will be using the 1031 exchange with is important to be viable for the use of the exchange. When you do the actual exchange, the properties must be at the same value to be able to proceed. Here are two rules you will need to remember when doing the 1031 exchange. The two rules are: First, the value of property upon which you will use the 1031 exchange must either be equal or greater than the one you sold if you intend to exchange, and Second is that everything that you will make from the first property must be entirely used for the exchange.

The person who will be held accountable if ever the rules are not followed will be the one who proposed the exchange.

Now we go to the time limit that you will need to consider in the 1031 exchange. These time limits are also known as the Identification Period and Exchange Period.

In the Identification Period, the exchange initiator must identify the property they intend to make an exchange with. The time limit for this period is 45 days right after the property is sold, no holidays and weekends.

In the exchange period, you have 180 days after the transferring of the first property or until the tax return date of the taxable year given whichever will come first.

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