The Essential Laws of Options Explained

Important Things You Must Know About 1031 Exchanges

Tax nerds could actually tell you a whole lot of info about Internal Revenue Code Sections but most people could never get more than 401(k). (If you haven’t noticed it yet, your workplace retirement savings plan got its name from a section of the tax code.)

So what exactly is 1031? When you talk about 1031 exchange (also termed as like-kind exchange), it is the swapping of one business asset or investment asset for another. Although the majority of swaps may be taxable as sales, if it is done under the 1031, it will either require limited tax due or no tax at all.

As an effect of this, you are now free to change the form of your investment without worrying yourself on things like recognizing or cashing out a capital gain. This is the way for you to continue the growth of your investment tax deferred. And there is absolutely no limit on how frequently you are allowed to do a 1031.

You also need to understand that there are complications doing a 1031 which is why it will be necessary for you get some help from a professional. If you’re considering doing a 1031, or you’re simply curious about it, here are the things that you should know.

Not For Personal Use

You should know that this is for investment and business property only, which would mean to say that there is no way for you to swap your primary residence with some other home. You may find ways wherein you can use a 1031 to swap vacation homes, but you should also know that doing so can be a lot trickier than you can imagine.

But some of your personal property may qualify

Most 1031 exchanges are dealing with real estate. But some personal property can qualify for some exchanges (like for example, a painting).

“Like-kind” is quite broad in meaning

The exchanges dealt here is merely of “like-kind” – an enigmatic phrase with a meaning that might not be what you think it is. With this exchange, you can actually exchange a ranch for a strip mall, or even an apartment building for a raw land. The rules can be that liberal. But again, you should be aware that there are quite a lot of traps set up for those who are not really familiar with it.

There is no problem with doing a “delayed” exchange”

When it comes to property exchange, it simply involves two people where one swaps his property for the other’s. But the truth is that it could be quite difficult to find another person who has that very property you want to swap for, who also wants the exact property that you currently have.