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1031 Exchange Properties: Information You Need To Know

Most of the investors and buyers nowadays are only focused on selling and buying real estate that they miss the opportunity of taking advantage of the 1031 exchange. In order for us to understand the 1031 exchange properties better, this article will talk about some important information about it as well as the benefits it will give to the people. The majority of real estate traders and investors just use their earnings for other purposes or they just keep it and save it for future use. The 1031 exchange can actually help you when you use your earnings in buying another piece of real estate because with its help, you sales will be non-taxable, unlike the normal sales which are taxable.

1031 exchange can also be called as tax deferred exchange. When it comes to this area, real estate investors are more knowledgeable because they use it as part of their strategy in their business. The process simply goes like this: you have to sell a qualified property then in a specific time given to you, you need to use the earnings you made to buy or exchange it for another property. Instead of being viewed as the usual buying and selling of properties, this transaction is viewed and treated as a simple exchange. Others may think that it is an illegal act or it is against the law. But do not worry since this act is perfectly legal and the law is very much well-informed about it. If you think that there are no rules and regulation involved in 1031 exchange, you are wrong. There will be an increase of tax liability for the person responsible for the exchange when these policies are violated. The same value for the two properties during the exchange must be observed.

But to simplify everything, here are the two major rules for 1031 exchange properties:

1. The total net sales price of the property that you sold which will then be exchanged must be lower or equal to the replacement exchanged property.

2. In acquiring the replacement, all of the equity received from the sale must be used.

If these rules are violated, the person who started the exchange will be liable to pay the tax for the acquisition of the estate. Remember the involvement of time-frame in 1031 exchange properties? These timelines can either be the Exchange Period and the Identification Period. Now, during this Identification Period, the initiator must identify and point out the property he wants to take as an exchange. This Identification Period starts from the day that the property was sold and runs for 45 days (weekends and holidays are already included). 180 days after the successful transfer of the first property (or after the tax return due date in some cases) – that is the Exchange Period.

Cited reference: web