Everything You Need To Know About 1031 Exchanges

LOS ANGELES - Rezul -- If you have an investment property that you're planning to sell out, then you should know about the 1031 tax-deferred exchange. Here, you'll find everything related to 1031 exchange - concepts, rules & definitions that you must know before planning 1031 exchange.

What Is 1031 Exchange?

Section 1031 of IRC (Internal Revenue Code), also known as 1031 exchange or a tax-deferred exchange, enables an investor to abstain from paying capital gains taxes on account of selling an investment property and reinvesting the proceeds into another like-kind property or properties of equal or greater value.

Situations When You Can Do 1031 Exchange -

Being an investor, there could be numerous reasons why you should opt for 1031 exchange. Some of the reasons are explained below:

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• An investor can seek a property having better return prospects and may wish to diversify assets.

• The owner of the investment real estate always looks for a managed property rather than the one to be managed by himself.

• You may want to merge several properties into one or may want to break single property into several assets.

• Reset the depreciation clock.

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Choosing A Replacement Property: Timing And Rules

Like-kind property is defined according to its attributes or nature and not its grade or quality. This means that there is a broad range of real properties that are exchangeable. The investor or the taxpayer can exchange Vacant land for a commercial building or multi-family building can be exchanged for industrial property or vice versa. The real estate property must be held for investment and not for resale or personal use.

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To receive the complete benefit of a 1031 exchange, the replacement property should be of equal or greater value. The investor has to identify a replacement property for the assets sold within 45 days and then finalize the exchange within 180 days.

1031 Property Rules

● The three-property rule allows the investor to identify up to three properties as potential purchases regardless of their market value.

●The 200% rule allows the investor to identify unlimited replacement properties as long as the total value does not exceed 200% of the value of the property sold.

●The 95% rule allows the investor to identify as many properties as he wants as long as he acquires the property valued at 95% of their total value or more.

We believe that all the information provided above will help you in planning your 1031 exchange.