Industrial Use If The 1031 Property Exchange
1031 property exchange is becoming increasingly popular with large corporations as they continue to move closer to their venders and suppliers. Having to move a company can be expensive enough, with the help of the 1031 property exchange law, the purchase and selling of property does not have to be the expensive part, as the 1031 property exchange can defer taxes. With the help of a qualified intermediary, or in house lawyers, funds are saved by the use and transfers of the 1031 property exchange.
The 1031 property exchange is the "exchange" of property while deferring the taxes until the sale of the replacement purchase. In order for this exchange to take place, a business must sell the initial property, relinquishing that property to another owner, and without touching the money, purchase another building or property within 180 days. The 180 days is with an extension. The original time period is 45 days to complete the sale from the moment that the initial sale was finalized. There are various rules and conditions that must be followed to ensure that the IRS is not being avoided, but with the help of lawyers and qualified intermediaries, this is ensured.
There is a very strong push from the final manufacturers for its venders to move closer to them in order to cut the shipping costs. Although most companies to hire companies to deliver the product, some have purchased their own trucking companies, trying to cut costs. The final method to cut costs is to place the raw packaging companies directly next door to the final packaging companies. This is what drives many companies to Mexico or southern United States. This is what is driving the industrial businesses that have always been in the northern part of the country, out of the areas.
This move is very expensive though, with costs ranging from the utilities upgrade to the purchase of the building, to training of employees. Then there is the movement of the various manufacturing machinery. 1031 property exchange limits the costs associated with the selling and purchasing of a property though. This is because the sale price of the original property can go directly to the purchase price of the replacement home without tax. An example can be seen as follows.
A business is moving to another part of the country. This business sells the original property for $100,000. Without the 1031 property exchange, the taxes on the property are $35,000. This means that $75,000 can be placed as a down payment on a replacement property. This, used as a 25% down payment allows for a $300,000 loan and with a 75% loan to property value, makes for a property value of $375,000. With the 1031 property exchange and the same circumstances, the down payment is increased to $100,000, with no taxes being taken out of the initial amount. This raises the loan amount to $400,000 and the property value being $500,000. With numbers like this, it is no wonder that the businesses that feel forced to move are using this law.
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