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Things You Need To Know About 1031 Exchange Properties

The 1031 exchange and its advantages have been unrecognized by most of the owners and investors nowadays since their only focus is towards the buying and selling of real estates. To learn more about 1031 exchange properties, this article will talk about some info that you need to know as well as its benefits to the people. The majority of real estate traders and investors just use their earnings for other purposes or they just keep it and save it for future use. The 1031 exchange can actually help you when you use your earnings in buying another piece of real estate because with its help, you sales will be non-taxable, unlike the normal sales which are taxable.

1031 exchange is also known as tax-deferred exchange. Some real estate investors are very knowledgeable about this because they actually use it as part of their business strategy. You have to sell a qualified property then in a specific time given to you, you need to use the earnings you made to buy or exchange it for another property – this is the simple understanding of it. So the business transaction is actually treated as an exchange and not as the normal buying and selling. Others may think that it is an illegal act or it is against the law. But the truth is, it is perfectly legal and the law is very much well-informed about it. If you think that there are no rules and regulation involved in 1031 exchange, you are wrong. There will be an increase of tax liability for the person responsible for the exchange when these policies are violated. The same value for the two properties during the exchange must be observed.

Here are the 1031 exchange properties’ two simplified rules:These are the two major rules concerning 1031 exchange properties:

1. The property that will be the replacement must be greater or equal to the property that you sold’s total net sales price.

2. In acquiring the replacement, all of the equity received from the sale must be used.

The person who started the exchange will be liable to pay the tax for the acquisition of the estate if these rules are violated. Remember when I mentioned earlier that there is a time-frame in 1031 exchange properties? These timelines can either be the Exchange Period and the Identification Period. Now, during this Identification Period, the initiator must identify and point out the property he wants to take as an exchange. This Identification Period starts from the day that the property was sold and runs for 45 days (weekends and holidays are already included). The Exchange Period, on the other hand, runs for 180 days after the successful transfer of the first property (or after the tax return due date in some cases).

Source: http://www.amarillorealestateguide.com/how-does-capital-gains-tax-affect-my-home-sale/