The Beginner’s Guide to Options

Some Things about 1031 Exchange Property Tax You Need to Know

Because most home owners and other businessmen are too busy doing the buying and selling of property, the benefits of getting a 1031 exchange that IRS offers is not being considered. The primary focus of this article is to provide you with the basic information that would help you in achieving the benefits and all that the 1031 exchange property can offer for your advantage.

Usually, the concerned authorities who buy and sell real estate use their profit in various means or they sometimes even save them for purposes other than they need now. However, there is also the option of using their profit to get another real estate where they can use the 1031 exchange to assist them over the other sales that the IRS will be taxing.

Tax deferred exchange is another names used for the 1031 exchange. This is usually part of the strategies employed by the investors from the real estate. Simply put, this exchange is about selling a qualified real estate, the profit you will be making from that real estate will be used to buy or exchange for another real estate within a set amount of time. Think of the process as the need to make exchanges and not buying and selling the properties.

There are some who are sceptical about the process because they think that it is unlawful or even illegal to practice such method. The actual truth is that the law knows about the existence of the exchange that is why it is not illegal in the last bit. Do not worry because the exchange is governed by many rules and regulations that will also protect you if you choose to use the method. Tax liability is specified in the policies within the exchange in the case of violations and other problems that may happen when practicing the exchange.

Similarity of properties you will be using the 1031 exchange with is important to be viable for the use of the exchange. When you do the actual exchange, the properties must be at the same value to be able to proceed. The 1031 exchange employs these two rules that you will need to remember. The following are the rules: First, the value of property upon which you will use the 1031 exchange must either be equal or greater than the one you sold if you intend to exchange, and The other rule is that all the profit you will make from the first deal be entirely used for the replacement procedure.

The person who will be held accountable if ever the rules are not followed will be the one who proposed the exchange.

Now we go to the time limit that you will need to consider in the 1031 exchange. Identification Period and the Exchange Period are the specific names of these time limits.

The first period is the Identification period wherein the initiator must show the property they wish to make the exchange with. The time limit for this period is 45 days right after the property is sold, no holidays and weekends.

In the exchange period, you have 180 days after the transferring of the first property or until the tax return date of the taxable year given whichever will come first.

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