A Quick Overlook of Exchanges – Your Cheatsheet

What You Must Know About the 1031 Exchanges Some of the investors out there have been wise to the tax benefits of the 1031 exchanges for many years. Those are just new to this surely wonder and they wish to know more about this. They would hear the realtors, the investors, attorneys and others say this but they are not quite clear on what the process actually involves. Well, to simply put it, the 1031 exchange would let an investor swap a business or investment asset for another one. Under such normal circumstances, the sale of such assets would actually incur tax liability on any capital gains. But, when you are able to meet the requirements that you can find in the section 1031 of such IRS tax code, you can then defer the capital gains tax. It is imperative that you keep in mind that the 1031 exchange isn’t a form of a tax avoidance scheme. If you are going to sell the business or the investment asset and you don’t replace this with another property, then such capital gains taxes will be due. There are really many things that you may not understand with the 1031 exchange and such is the reason why it is wise to ask for help from the professional who is experience with such transactions. Before you try the 1031 exchange yourself, you must know a few things and get to understand the basics.
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You must know that this is not for personal use. Though you would get tempted to think of trading your residence and avoid dealing with the capital gains, such 1031 is jus available for the property that is held for the business or the investment use.
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There are also some exceptions to the personal use prohibition. Just like most things in the IRS code, there are also exceptions to the rule. Personal residences will not qualify, you may also exchange the personal property such as a piece of artwork or the tenancy-in-common. Keep in mind that the exchanged property has to be like-kind. This is one area that those new investors find confusing. The term like-kind doesn’t actually mean exactly similar but this means that such exchanged properties should be the same in use and scope. The IRS rules may be liberal but there are several pitfalls for those who are not quite careful. You should also keep in mind that the exchanges don’t happen at the same time. One of the important benefits is that you may sell the present property and have up to 6 months to close the acquisition of the like-kind replacement property. This known as delayed exchange. If you like to complete this exchange, then you need the help of such qualified intermediary.