1031 Exchange - Exposed- By: Flynna Jones
Did you know 1031 Exchange works? Have you ever heard of it? The 1031 plays a major role in the Revenue code. This code says that the property owners who wish to dispose their investment property will be saved from the capital gains tax if the proceeds of the transaction will be used to acquire similar kind of investment property. However, there are certain guidelines and conditions that you must be able to conform to before you can enjoy such benefit.
As what was discussed earlier, the owner of these investment properties have to purchase the same type of property or similar in nature. This property should be recognized within 45 days on the closing of the initial property. It does not really have to be exactly the same with the property that was sold. Selling an undeveloped land, does not immediately mean that you have to buy the similar type. Provided that it is an investment property that conforms to the policies and guidelines of 1031 exchange, it is acceptable. The IRS has provided a broader meaning and analysis for the property, which the investors can consider as advantageous to them.
The qualified intermediary or QI is known as the middleman. That proceeds of the transaction should be given to him. The amount that was not turned over to the QI is taxable. He will hold the fund in escrow until the closing for the new property is made. Moreover, he is also tasked to help the buyer in handling the documentation to secure that there will be no problems in the future.
Apart from buying the same kind of property, which should be identified within 45 days on closing, it should have equal or higher debt than the first property. Moreover, the closing of the second property has to be deducted within 180 after the closing of the first property was done.
Most of the investors are now enjoying the benefits of 1031 exchange. Through this they can sell their latest investment property to get a new one. If you want to experience its benefits, you have to know the rules and regulations of the code. You have to tell the other parties if you are going to use this, regardless if they are the seller or buyer. You have to include this in the notification to all parties involved. This is essential so that other individuals will know the reason for entrusting the transaction to the qualified intermediary. They will also be aware that they are required to follow him. Once the transaction is through, it will be filed together with the tax return through the form 8824.
There are a lot of people who can enjoy the benefits of 1031 exchange. However, you have to be aware with its policies and other guidelines. Keep in mind that you only need to buy the same type of property to be able to be free from the capital gains taxes. And also do not forget to comply with the requirements.
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