The First Five Rules of 1031 Options
Investing in mineral rights is more profitable than other properties. Why? For the reason, you can go through our previous blog. To sum up in short, investing in mineral rights through 1031 exchange options is hassle-free than other properties and easier if you have the right guidance. On the other property investments, you might not have mediators who can guide you to get the best interest. However, here we will discuss five 1031 exchange rules that you need to know.
You might not know that in five ways you can roll proceedings from one property to another without capital gain penalties. These five rules can be used for property exchange from one to another or for multiple assets.
Through this most common use, you can sell out your property; find out a like kind one for replacement within identification period i.e. 45 days, and can close the replacement property within the exchange period i.e. 180 days. These period is fixed even if there is a national holiday or a weekend; that does not affect identification or exchange period. If you do not find a like-kind property or the replacement property on the 46th day, the exchange will be invalid.
This one indicates a property swap and allows the owner to exchange deeds and documents with another party. A direct swap keeps you away from all the hassles related to buyer finding, rolling over the process etc. On the other hand, finding out an investor with like-kind property who is willing to swap on the same day can be critical.
What will happen if you find out an ideal asset but it does not meet equal or greater value set by the Internal Revenue Service (IRS) 1031 exchange rules? Under this circumstance, improvement exchange of 1031 exchange options will help you to increase the value of that to-be-replaced property, taking help from exchange equity.
Suppose, you have already found your ideal exchange property. Other bidders are targeting your asset when your original property is still under escrow. At that time, you should choose reverse exchange that will allow you to buy that replacement property before your property selling closes down. Though this one sounds quite convenient, it is critical to do without professional help.
Personal Property Exchange
Not only real property but also personal property can be considered for exchange as it comes under 1031 options. But this personal property should be like-kind replacement property. IRS defines personal property as something that is not real estate. It includes tangible assets such as vehicles, livestock, intangible assets such as patents, copyrights etc.
Though using the personal property is critical as it has narrower scope to be treated as like-kind property, than real estate, what is the purpose of using it? The answer is, the fair market property value is greater than the adjusted cost.
These rules make property exchange quite easier. If you are interested in investing in mineral rights through 1031 exchange options, contact Ten31 Minerals.