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A Guide to 1031 Tax-Deferred Exchange

Financing and taxes are the main worry of buyers and sellers of real estate. Favorable financing terms and like-kind exchange opportunities that help with tax consequences are what buyers and sellers of real estate need to achieve their goals. Section 1031 of the Internal Revenue Code in the US states that capital gains taxes can be deferred. With the 1031 exchange real estate sellers can gain much. By the 1031 exchange, capital gain taxes can be deferred on sale of real property if the money is to be used to purchase a replacement property. This capital gains tax liability is not eliminated but deferred until the investor sells out for cash. 1031 exchange is also called a tax-deferred exchange.

Diversifying income can be made possible through real estate investments.

If you use your home for business purpose, like having it rented, it can qualify for 1031 exchange. Making your home a rental property forbids you to use it as a residence for the most part and you have it rented out in more months. You are then qualified for 1031 exchange tax benefits.

This is how 1031 exchange options work.
A qualified intermediary should be hired to help receive funds on your behalf and apply them towards the purchase of a second piece of property.

Identifying the property you will sell is the next step and here the capital gains tax on profit are deferred through the 1031 exchange rules.

Replacing the original property with another investment property is done next. The time limit for identifying the replacement property for a 1031 exchange is very strict and that is why you need to do it fast so you will not miss the tax benefits for this exchange. Taking too long will disqualify you from this tax benefit. The timeline associated with the transaction can be addressed with the help of qualified intermediaries.

The initial property should then be sold using your qualified intermediary and then purchase the additional property.

These steps will meet the requirements of a 1031 exchange. For more information you need to consult with a legal or accounting professional.

Owners can replace their management intensive properties with any quality property that would generate more income, increase tax benefits and appreciation potential. With the replacement of a property through the sale of another, the capital gains tax on profit is deferred through the 1031 exchange. This exchange process allows investors to reorganize and improve their real estate portfolio to best suit their interests and needs. Internet provides a platform for sharing information related to real estate and many websites have been created where one can gain knowledge bout 1031 tax deferred exchange, like-kind property exchange and qualified intermediaries.

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