Interested In A 1031 Exchange?
A 1031 Exchange, known as a "Like-kind" exchange is method of upgrading or purchasing property while deferring the taxes on that property. The 1031 Exchange allows one to sell one property and purchase another within a set period without taxes or profit. Known for the location in the law, this comes in very handy for many people who are purchasing large amounts of land or people who are moving.
In order of a property or purchase to qualify for a 1031 Exchange, there are some requirements that it must meet. There cannot be a profit or a "boot" with the property. This is because taxes would need to be collected on the profit of selling the property. The point with 1031 Exchange is that there is no profit, because the property is "replaced" by a property of equal of greater value.
Another requirement of a 1031 Exchange is that the transaction is completed in forty-five days. This is to say that the sale of one property is 45 days before or after the purchase of another property. There are alternatives if this is not possible, such as investing that money with a qualified neutral party. The money from a sale cannot be collected or handled by the seller at closing because the sale is a 1031 law exchange, but a neutral party can receive and hold the money. Any money that the seller gets must be taxed.
These sales are typically for large purchases, such as apartment buildings or malls, but can be used in homes. Some examples of such uses will be listed below. One such use is the selling of a mall. If a owner wanted to sell a mall and become an apartment owner, with a 1031 Exchange he would be able to sell the mall, and use that money to buy his apartment building without paying taxes on the money. This allows him to place a bigger portion down for the apartment building since the money would not decrease due to taxes. Another example of a 1031 Exchange is the selling of a home. There are many families that sell and buy homes within a month span. This can be done using a 1031 Exchange laws providing that the first home is of equal or less value than the new home. This allows for more money to be placed on the new home and making it easier to purchase the new home.
There are nice advantages to purchasing a property using the 1031 Exchange aw. These tax advantages allow one to use the money in total, rather than having to give a portion of it to the State. The disadvantage comes when the money would not be gained, but rather lost. In such an event, this money cannot be counted as a loss because of the 1031 Exchange law, which is supposed to prevent such losses. There are many reasons a property could lose value, everything from vandals to new construction. These losses though must be eaten by the purchaser.
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