1031 Exchange: A Guide


1031 exchange allows an investor to exchange one investment or business with another one. The sale of these assets under a normal condition would have a tax liability on capital gains.  If on the other hand, you meet the set tax code requirements of section 1031, you can readily defer the capital gains tax at hand.  It is essential for one to note that 1031 is not a scheme to evade taxes. When you eventually sell your business or investment without replacing it with an asset, you will need to pay the capital gains tax.

There are many degrees of 1031 exchange at www.1031gateway.com. It is, therefore, necessary for you to seek professional advice when doing such transactions.

1031 exchange is not meant for personal use. It might be tempting for someone to sell his or her residence and avoid the liability of capital gains tax. This, however, is not right since 1031 only applies to business or investment use. There are some personal use prohibition exceptions of 1031. Although personal residents do not qualify for 1031, one can exchange personal property like the interest in a common Tenancy or an artwork piece.

The exchange property should be of like kind. Although not the same, they ought to be similar in scope and use.

Not all the 1031 exchanges at this website happen simultaneously.  You can, for example, sell your property and take up to 6 months from the acquisition’s time. This is referred to as the delayed exchange. A qualified intermediary would help you complete this transaction.

On timing matters, The IRS is so strict in 1031 exchanges. They may allow you to defer taxes but will have to hold you into crucial deadlines that you can comply. The 45-day rule, for example, requires that you identify your replacement property within 45 days from the sale of your property. If you fail to do so, taxes will be due.

You can designate the replacement of multiple properties. The IRS allows you to name up to two or more properties. This is however subject to many limitations.  When you name up to three, for example, you are required to close one within the stipulated time. You can alternatively name more than three if only they comply with the 200% valuation requirement rule. For more facts and info about 1031 Exchange, Visit https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031.

When keeping the strict terms, the IRS requires one to close their replacement property within 180 days of the relinquished property’s sale. Time starts counting the moment you sell. The time calculation is also similar to that of the 45-day rule.