3 Exchanges Tips from Someone With Experience

A Guide to 1031 Tax-Deferred Exchange

Buyers and sellers of real estate are mainly concerned about financing and taxes. Buyers and sellers can achieve their goals through favorable financing terms and like-kind exchange opportunities that help with tax consequences. Section 1031 of the Internal Revenue Code in the US states that capital gains taxes can be deferred. Real estate sellers can gain from this strategy. By the 1031 exchange, capital gain taxes can be deferred on sale of real property if the money is to be used to purchase a replacement property. Capital gains taxes are deferred in favor of a replacement property, but when this property is sold for cash then the capital gains taxes on profit for its sale has to be paid. Another terms for 1031 exchange is tax-deferred exchange.

Diversifying income can be made possible through real estate investments.

If you use your home for business purpose, like having it rented, it can qualify for 1031 exchange. If your home is now a business then you cannot make it your residence but you need to have it rented for the most part of the year. When this happens you qualify for tax benefits in a 1031 exchange.

This is how 1031 exchange options work.
A qualified intermediary should be hired to help receive funds on your behalf and apply them towards the purchase of a second piece of property.

Through the 1031 exchange rules, you identify the property you wish to sell, deferring capital gains taxes on the profit from the sale.

Replacing the original property with another investment property is done next. Because of strict time limits that can cause you to miss the tax benefits of a 1031 exchange, you need to identify this ahead of time. If the identification of the second property will exceed the time limits, then the person is disqualified from this tax benefit. The timeline associated with the transaction can be addressed with the help of qualified intermediaries.

Proceeds from the sale of your property goes to the intermediary and this money is used for the purchase of the second or replacement property.

The requirements for a 1031 exchange is met by following the steps above. For more information you need to consult with a legal or accounting professional.

If a real property is management intensive, the owner can exchange it for quality property with a great income potential, increase tax benefits and appreciation potential. Capital gains tax will be deferred through the exchange which give the property owner more proceeds to purchase a replacement property. The 1031 exchange enables investors to reorganize and improve their real estate portfolio to suit their interests and needs. Internet provides a platform for sharing information related to real estate and many websites have been created where one can gain knowledge bout 1031 tax deferred exchange, like-kind property exchange and qualified intermediaries.

Source: http://www.masterandstudent.com/2016/03/benefits-of-1031-tax-exchange-for.html