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Everything to Know About the 1031 Exchange

You could also refer the 1031 exchange as starter exchange. It is possible for the investors to defer paying capital gains taxes on the property through the use of 1031 exchange. The 1031 exchange helps an investor to acquire property without incurring a tax liability.

Through the use of 1031 exchange, an investor could acquire a low-income property that needs high maintenance. You could even move your investments from one place to another without the burden of IRS- 1031 exchange help you do this.

Only the properties of the same kind and value could be swapped through the use of 1031 exchange. To buy time due to the challenge of finding properties of the same kind the 1031 exchange allows for delays.

The capital gains tax is required every time you need to sell an investment property. The tax burdens could make very cheap to sell n investment property. However if you have a rental property that has more value than the time you acquired it you could make huge gains by using 1031 exchange to swap it.

The swap of properties through the 1031 exchange only happens when the property is of the same kind and value. You can avoid the tax burden by using 1031 exchange for quite a period.

You only buy time to pay tax when you use 1031 exchange. It actually helps an investor buy time before they pay for tax. The 1031 exchange helps the investor avoid sudden tax obligation. The 1031 exchange is mainly used by the real estate investors.

Both the purchase price and the loan amount are required to be the same or a bit higher than the replacement property according to the terms and conditions of the 1031 exchange.

The four types of 1031 exchanges include the simultaneous exchange, delayed exchange, reverse exchange, and construction or improvement exchange.

The exchange happens in one day through the simultaneous exchange. It is not common to find investors using the simultaneous because it is difficult to find another investor with the same kind of property. Finding another property of the same kind or exchange is very difficult.

The most common kind of 1031 exchange is the delayed exchange. Before replacement property could be found an investor could sell their property.

The reverse exchange requires that an investor pays all the money which may be hard to come by since the banks do not lend the money for this particular type of exchange.

When the property an investor is supposed to acquire is of less value than the one they want to relinquish the construction or improved exchange is used to build or enhance the property to be bought or exchanged for.

Source: http://www.intelligenthq.com/resources/become-a-master-of-real-estate-in-the-modern-age/