7 Must-Follow Rules for a Real Estate Like-Kind Exchange
If you are dealing with real estate business, it is imperative for you to know the term 1031 Exchange. Many real estate investors are confused about the entire matter. Due to the lack of clarity on the concept they fail to get the desired return through these profitable trades.
To define it simply, a 1031 Exchange is a real estate like-kind exchange that is powerful enough to defer the tax. It is a combination of strategies that every successful investor follows to flourish in this business. Financial investors think that 2018 is the perfect time to exchange properties in expensive markets where cash flow will be steady. Because of this the 1031 Exchange is a very relevant topic to discuss.
The entire industry of real estate like-kind exchange is based on some core rules. If you follow the rules properly, you will win the game. Here are the top seven rules. Take a look.
1. To be eligible for the 1031 Exchange, you need to trade in the like-kind properties. The sold property and the acquired one should be of the same type, have the same nature, quality, asset and value.
2. The deal is only applicable for business properties. If you are moving from one place to another, you can’t trade in your primary and secondary location. Both of the properties should not belong to you.
3. To defer the taxes from selling your property, you may buy another property, but the IRS demands to know the net market value of both the properties. The property you buy should be of equal or greater in value. By doing this it will qualify you for the real estate like-kind exchange.
4. If the value of the new property is lower than the sold one, you will gain profit, thus, the exchange will not be completely tax-free. The difference between the two values is called boot and you will pay tax on that amount.
5. For a tax-return, the name should be the same on both of the papers as a seller and buyer. In breach of this rule, the IRS may sell the original property and the transaction holders may need to get new paperwork with individual names.
6. The property owner has to maintain a tenure of 45 days to get a new like-kind property post sale. The owner qualifies to identify up to three like-kind properties after the sale on their tax-return.
7. The entire process of buying a new like-kind property should be done within 180 days. The identification of it should be done within 45 days and for the rest of the process, 180 days are sanctioned. If the income tax return due date is earlier than the 180 days, then that period will be considered as well.
For hassle-free handling of the entire complicated process of real estate like-kind exchange, you can hire Ten31 Minerals to get maximum benefits without putting in any effort.