When someone asks what a 1031 real estate exchange is, perhaps the simplest explanation is that it is when an investor can actually exchange one property or asset for another property or asset based on the Internal Revenue Service's rules, regardless of whether the property is residential, office, industrial or retail. The 1031 tax free exchange is used like a tax deferral tool, especially during a time when the real estate market is in a rapid appreciation, as the sale of a property during that time can result in high capital gains. While the IRS has simplified the process, there are still some strict guidelines that must be followed in order for the exchange to be approved.
Every once in a while there's some confusion as to what qualifies as "like kind" property for a tax deferred 1031 exchange. Some examples of eligible properties include duplexes, apartments, raw lands, commercial properties and single family rentals. For instance, you can exchange raw land for a single family rental or an apartment building or a commercial building and the transaction can occur anywhere in the United States.
Many investors or property owners are under the impression that in order to qualify for a 1031 tax free exchange, both exchanges must be done simultaneously. However, that is not the case. In fact, the 1031 exchange rules allow for 180 days from the sale of the original property to the closing of the replacement property, but the replacement property has to be identified within 45 days of the closing of the sold property.
The rules regarding 1031 exchanges are applicable on the condition that you plan on selling a property that's not your primary residence (and conforms with the like kind guidelines), and you plan to purchase a property inside of 180 days after you close on the sold property.
In order to keep some flexibility you may want to consider separate exchanges for every property that you are considering relinquishing in a 1031 tax free exchange; however, there is no limit to the number of properties that may be traded during one exchange, which many owners and investors do find useful, especially if they have several properties that they want considered in a short period of time. - 31821
Every once in a while there's some confusion as to what qualifies as "like kind" property for a tax deferred 1031 exchange. Some examples of eligible properties include duplexes, apartments, raw lands, commercial properties and single family rentals. For instance, you can exchange raw land for a single family rental or an apartment building or a commercial building and the transaction can occur anywhere in the United States.
Many investors or property owners are under the impression that in order to qualify for a 1031 tax free exchange, both exchanges must be done simultaneously. However, that is not the case. In fact, the 1031 exchange rules allow for 180 days from the sale of the original property to the closing of the replacement property, but the replacement property has to be identified within 45 days of the closing of the sold property.
The rules regarding 1031 exchanges are applicable on the condition that you plan on selling a property that's not your primary residence (and conforms with the like kind guidelines), and you plan to purchase a property inside of 180 days after you close on the sold property.
In order to keep some flexibility you may want to consider separate exchanges for every property that you are considering relinquishing in a 1031 tax free exchange; however, there is no limit to the number of properties that may be traded during one exchange, which many owners and investors do find useful, especially if they have several properties that they want considered in a short period of time. - 31821
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If a real estate investor wishes to sell one of their properties and does not want to pay taxes on it, then they will need to follow the 1031 exchange. 1031 exchange properties allow the investor to defer the taxes under certain conditions.
