What To Know About 1031 Exchange?

There are some investors who've been aware of the tax benefits of 1031 exchange. Others are just new to this concept and may be wondering what the fuss is all about. They hear realtors, lawyers or several other investors doing 1031 but not clear on what the process involves. To gather more awesome ideas, click here to get started  www.1031gateway.com

Simply put, 1031 exchange lets an investor swap one investment asset or business for another. Under any normal circumstances, the sale of assets incurs a tax liability on capital gains. On the other hand, say that you have met the requirements of section 1031 of IRS tax code, then you could defer immediate capital gains tax. It is important however to take note that a 1031 exchange isn't tax avoidance scheme. Sooner or later, when you sell an investment asset or business and do not replace it with another like kind property, capital gains taxes would be due. Learn more about 1031 exchanges, go here  www.1031gateway.com

As a matter of fact, there are various nuances to 1031 exchange which is the reason why it's smart to seek professional guidance. Still, if you're curious about its basics, here are few things that you have to know prior to getting into 1031.

Number 1. This is not intended for personal use - while it is very tempting to trade up your primary residence and be able to avoid capital gains, 1031 isn't available for property held for investment or business use.

Number 2. There are some exceptions to personal use prohibition - much like most things in IRS code, there are some exceptions to the rule. Generally, while personal residences do not qualify, you can exchange personal property successfully like your interest in a piece of artwork or tenancy in common.

Number 3. Exchanged property has to be like-kind - this is an aspect that often confuses several investors. The term like-kind does not indicate exactly the same but, merely that the exchanged property be similar in scope and use. While the rules of IRS are liberal, there are several pitfalls for unwary.

Number 4. All exchanges are not happening simultaneously - among the key benefits is that, you can get to sell your current property and have 6 months to close on the acquisition of like-kind replacement property. This is otherwise known as delayed exchange. When are considering to complete such exchange, then you need the assistance of an intermediary or the person who holds the sale proceeds from relinquished property and then buy the replacement property on your behalf.

Better make yourself aware of these things before you decide to get into 1031 exchange to avoid any unwanted issues down the road. Kindly visit this website  http://www.wikihow.com/Perform-a-1031-Exchange for more useful reference.