This article details how 1031 Exchanges can be used as a powerful and strategic investing tool to defer taxes until a later date, and how to most effectively acquire a replacement property. The key to 1031 Exchanges is to abide by the three most important rules; replace debt with debt and equity with equity, allow the money to pass through the right hands, and abide by the set time lines. If all these steps are followed you can successfully defer taxes to a future time, and avoid an unpleasant tax audit.
It is important to understand the 1031 Exchange first because you can definitely take advantage of it. Using this strategy will help you earn more. This method is also known as tax deferred exchange. As the name suggest, this is an exchange, which takes place when an individual sells a property and buys another. This is similar with the typical sell and purchase of a property. However, unlike the said transaction, an exchange will not require the payment of the property tax gain. This is duly explained in the Internal Revenue Code under Section 31. This also follows the regulations of the like-kind exchange.
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