1031 Tax Deferred Exchange

If you’re not familiar with the “1031,” this law allows the exchange of investment or business property for other investment or business property, without paying tax (it’s deferred) if the property received is “like kind.”

When a real estate investor typically sells an investment property, they are taxed on any gain realized from the sale.  However through a 1031 tax deferred exchange a real estate investor can sell an investment property and buy a new property with the gain or profit from the sale and not owe taxes on the sale immediately.

Some Qualified Intermediaries will include other charges for complicated, transactional structures, such as allowing the seller to go for carry-back financing, which means they want the QI to carry back a promissory or installment note. There are some other transaction fees that may go along with a IRS 1031 exchange, such as a wire transfer commission or mail and courier delivery charges, which some of the smaller QI’s will include in their fee structure. Knowing the details of these fees is always advisable when making your final choice of a Qualified Intermediary.

You must then find and identify the replacement property with 45 days of closing. You’ll then have 180 days to acquire and close on that property, making sure that everyone concerned knows that it’s part of a 1031 exchange.

Also, when considering 1031 Tax Deferred Exchange and Tenant in Common, you can’t help but be impressed by the advantage that you get with regard to deferring on paying capital gains tax. All that is required is for you to deal in structured property and to ensure that your circumstances as well as actions strictly adhere to 1031 rules. If you ensure these conditions are complied with, as an investor you can then sell your high value property and then defer, though not avoid, paying capital gains tax.

This article provides a basic introduction to a 1031 tax deferred exchange and should not be relied upon as legal advice. If you want to complete a 1031 tax deferred exchange you need to consult a competent professional.

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