Study: My Understanding of Options

Property Tax 101: 1031 Exchange Property Tax

Usually, concerned home buyers and sellers are too hooked up in the process of the buying and selling that they have not thought about what the 1031 exchange of the IRS can offer to them for their advantage. We will be focusing on the basics and the first things that you need to know about the 1031 exchange properties to help guide you to acquire its benefits.

How the businessmen and others who are concerned with real estate usually use the profit that they go in various means or save them up for future purposes. Other sales are usually taxable by the IRS, that is why another option for the investors is to use their profit in obtaining another real estate but with the use of the 1031 exchange.

The 1031 exchange is also known as the tax deferred exchange. Investors from the real estate business who have been working there for a long time usually know about this exchange and use it for their own strategy. The process works like this: you will buy a real estate that is qualified and with the profit you made, you need to buy or exchange it for another property within a given time period. The transaction is more of making an exchange that actually the buying and the selling of real estate.

It is uncommon for some people to be doubtful of the exchange because of the idea that you will be doing something that is unlawful or illegal. But the thing is, it is neither illegal nor unlawful, and it is actually allowed by the law. Do not worry because the exchange is governed by many rules and regulations that will also protect you if you choose to use the method. Tax liability is specified in the policies within the exchange in the case of violations and other problems that may happen when practicing the exchange.

One important reminder in the 1031 exchange is that the properties you will be involving must be similar so as to be considered viable. The value of both properties need to be the same before you can proceed with the exchange. Two rules are usually employed by the 1031 exchange that you might want to look at first. They have stated that: First, the value of property upon which you will use the 1031 exchange must either be equal or greater than the one you sold if you intend to exchange, and The last rule is that you use everything you have gotten from the sale for the exchange you will be doing.

If ever any of the rules is not followed through, the initiator of the exchange will be held accountable for these violations.

Now we go to the time limit that you will need to consider in the 1031 exchange. Identification Period and the Exchange Period are the specific names of these time limits.

The Identification Period, the initiating body must present the property they wish to exchange. Holidays and weekends are included in the 45 days after the selling of the property period.

In the exchange period, you have 180 days after the transferring of the first property or until the tax return date of the taxable year given whichever will come first.