A Beginners Guide To Finances

A Few Things that You Should Know Regarding the 1031 Exchange Some investors have been wise to such tax benefits of 1031 exchanges for a number of years. Those are just new to this surely wonder and they wish to know more about this. They would hear the realtors, the investors, attorneys and others say this but they are not quite clear on what the process actually involves. To make it easy, the 1031 exchange would allow the investor to swap a business or such investment asset for a different one. Under normal circumstance, the sale of the assets would incur tax liability on the capital gains. But, when you meet the requirements of section 1031 of such IRS tax code, then you will be able to defer any capital gains tax. However, it is quite important to take note that such 1031 exchange is actually not a tax avoidance scheme. When you would sell the investment asset or the business and you won’t replace this with another property, then you will pay for the capital gains taxes. There are so many nuances to the 1031 exchange and this is the reason why it is really wise to seek some help from such professional experienced with the transactions. Before you try the 1031 exchange yourself, you must know a few things and get to understand the basics.
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You must know that this is not for personal use. Though it can be tempting to consider trading up the primary residence and also avoiding capital gains liability, the 1031 is just available for property held for business or the such investment use.
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There are some exceptions to such personal use prohibition. Just the same with a lot of things in the IRS code, the are exceptions to the rule as well. Personal residences will not qualify, you may also exchange the personal property such as a piece of artwork or the tenancy-in-common. You have to remember too that the exchanged property must be like-kind. This is actually an area that would sometimes confuse the new investors. The term like-kind won’t mean the same but such means that the exchanged property should be the same in scope as well as use. The IRS rules may be liberal but there are so many pitfalls for those who are not so careful. You must also remember that the exchanges don’t actually happen concurrently. One really important benefit is that you can sell the current property and have around six months to close the acquisition of such like-kind replacement property. Such is termed as delayed exchange. When you want to complete such exchange, then you will need the help of an intermediary who is qualified.