1031 Exchanges Explained

1031 Exchanges Explained

Tax is certain. When state and federal taxes are combined, the capital gains tax (CGT) eats up to 30% of a person’s profit. The huge tax deduction pushes people to find alternative ways to prevent this deduction.

As a result, people seek refuge from the under . Also known as the tax deferred exchange, this is a clever strategy to sell properties and investments, which postpone CGT.

The process of selling a property and acquiring another in the same period is considered a standard sale. The 1031 exchange, on the other hand, treats the process as an and not a typical buy and sell. A taxpayer is allowed to sell his property in exchange of a like-kind. This allows the taxpayer to qualify for a suspended CGT. In summary,

The 1031 exchange is noted as the most reliable and effective wealth-building tool available for US taxpayers. Most financial experts and real estate professionals attribute their success to the usage of 1031 exchange.Tax is certain. This strategy is cited as a wise tax and investment method on top of being a real estate management device.

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 However, 1031 exchange will not take effect unless under specific regulations. The major rules on 1031 exchange properties explain that the total purchase of the like-kind must be equal or greater than the original cost of the sold property. The other is that all income received from the transaction should be used to purchase the like-kind.

Furthermore, there are also two timelines that are being followed for 1031 exchange. The first is the by which1031 exchange companies should find a like kind-property to acquire. The timeline defines this as exactly 45 days from the day the person puts up his property for sale. The 45-day rule should be strictly followed and cannot be extended.

Lastly, the other timeline is the where the selling 1031 exchange companies should receive the replacement investment. The exchange should be completed within 180 days from the transfer date. The Internal Revenue Service rule, the 180-day period, allows no extensions, requiring strict adherence.

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