What Real Estate Investors Should Know About 1031 Tax exchange - Before You Sell

There are some requirements that must be made before a 1031 Tax exchange can take place.  But a Section 1031 tax-deferred exchange is a true benefit that every real estate investor should know about.

The benefit to you as a real estate investor should be obvious. By pushing the payment of taxes into the future with the exchange, you have the full value of the property available to be exchanged, and from a time value of money stand point, the longer your tax payments can be deferred into the future, the greater the present value of that deferral. These are complex, however, and as the disclaimer goes, should not be attempted without a qualified intermediary such as Cooney and Associates, Inc.

First, the property must qualify for a Section 1031 tax-deferred exchange. The asset must be held for the production of income in a trade or business or held as investment property. If you occupy the real estate or home this is excluded from the 1031 Tax exchange.

Secondly, a tax-deferred exchange involves numbers of requirements that must be met to be eligible for exchange treatment. Namely, only like-kind properties must be exchanged. For instance, whereas an apartment building for a parcel of raw land would qualify, a vacant lot for an automobile would not qualify. Moreover, only domestic properties can be exchanged.

Thirdly, the transfer of one property must be dependent upon receiving a qualified property in return within allotted time. The IRS currently allows 45 days for an acceptable exchange property to be identified and up to 180 days from the initial transfer to complete the delayed exchange.

Fourth, 1031 Tax exchange involving boot (non like-kind property) require calculations that are even more complex. For instance, if you receive a property with a smaller mortgage then the one you are disposing of, that results in net debt relief and is taxable as boot in the transaction. Properties not of equal value would constitute additional boot.

If you have more questions or concerns to determine if your sale would qualify contact our offices today for a no-hassle consultation of our services and expertise. We are you 1031 Tax exchange specialists.