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Important Knowledge to Help You Understand 1031 Exchanges Tax laws are very broad, and section 1031 is one of the most widely discussed provisions of the tax laws. This tax law is mentioned widely by realtors, investors and title companies like it is very important. The honest truth is that 1031 is very crucial in promoting investments in the country. With this provision, a business person can swap a business investment or asset for another asset. Such a swap is no taxable since the exchange can be done without recognizing a capital gain. To ensure that the exchange is not being misused, the law provides for some rules to follow in the exchange which is why you need the services of a tax professional when doing a 1031 exchange. Here are some few things you should know before a 1031 exchange. The 1031 provision is meant for swapping investment property as opposed to personal property. Individuals cannot use the 1031 exchange to exchange their homes with other people. That said, if you are looking to 1031 your personal property, there is some property that qualifies. You should, therefore, consult with a tax expert to help you with the exchange. The the general rule is that the assets being swapped must be of like-kind. While 1031 exchange is only for like-kind, the term has a very broad definition which means that something like a building could be considered like-kind with raw land. There is also a possibility of doing a delayed 1031 exchange. In this exchange, an individual will sell their asset but use a middle man to hold the cash received for the sale. The cash is then used to buy a replacement property that meets your needs. The transaction of this kind is treated as a swap. It is important to follow the guidelines of the 1031 exchange when making a delayed exchange. This means that under no circumstances should you hold the cash received after the sale of your asset lest you spoil the 1031 treatment. You must then designate a property that you would like to acquire. You can also designate as many properties as you wish as long as they meet the criteria set out under law.
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A maximum of six months is allowed for a swap to take place under the 1031 exchange provisions. This means that you must only make the exchange when you have everything in order. Also remember that in the case of a delayed exchange, any cash that remains after the replacement property is bought must be taxed. Last but not least, considerations must be made for mortgages and other debts attached to the property. So when you get property with lesser obligations, the reduction in obligations is treated as a gain which is taxable.Learning The Secrets About Funds