Real estate can be a great long-term investment option that can generate an ongoing passive…
If you’re interested in investment properties, and want to know what you owe as far as taxes are concerned, you’ll definitely want to know more about 1031 exchange properties. Under most circumstances, when you sell a property for the purpose of making a profit, the IRS takes a cut of these profits right away. However, when you’re working with 1031 exchange properties, the exchange is tax-deferred, so that you can roll over the gain from the sale from one investment property into another.
Before you start dealing with 1031 exchange properties, there are a few basic principles that you’ll need to understand. First, you should know that the purchase price of the replacement property must be equal to or greater than the net sale price of the property that you’re selling. All of the cash and any other proceeds that you receive from the sale of the property have to be used in order to purchase the replacement property. And, the properties that you’re buying and selling must be of ‘like-kind’, which means they need to be used for the same purpose.
After you understand the basics of 1031 exchange properties, you’ll need to select an exchange facilitator. This person will handle all the paperwork that is necessary for the transaction. Your facilitator will also be responsible for receiving the funds from the sale. After you have a 1031 exchange professional on your team, you’ll need to sell your investment property to a buyer. It is very important that you let the buyer know that you’re doing a tax-deferred exchange.
It is essential that you choose a replacement property within 45 days after you close escrow on the investment property that you’ve relinquished. In order for the 1031 exchange properties to get in the right hands, you will have to write the address down on a form that is signed by you and given to the exchange facilitator within the 45 day period. If you miss the deadline, the sale of the property will then become a taxable event.
You should also keep in mind that if you are looking for a property to acquire, you can select up to three properties of any value, and one or more of these may be acquired. Also, one of your exchange properties can be exchanges for several, and several of the properties that you own can be exchanged for one. Make sure that you carefully plan your 1031 exchange properties transaction with a professional that is completely familiar with the tax code, so that you can go over the regulations as many times as you need to before the sale is complete.