You’ve been doing some research on how you can get into a new building now that your business is growing. Or, maybe your family is in the business of purchasing homes, fixing them up, and re-selling them. Either way, you’ll definitely want to know more about tax deferred 1031 tax exchange. There are a number of rules and regulations that come along with this process, but the transaction can prove to be very worthwhile for your business.
It’s important to understand three main rules when it comes to a 1031 exchange. First, the price of the replacement property that you’re purchasing has to be equal or greater than the property you’re moving out of. Next, all the cash or other forms of profit from the sale property needs to be used to acquire the new property. Finally, the properties that are involved in a tax deferred 1031 tax exchange have to be of ‘like-kind’, which means that they have to be the same type of property. This means that it will probably make sense for you to find a building that was used to house the same type of business that you are running, in order to make the 1031 exchange transaction go smoother.
When you make the decision to undergo a tax deferred 1031 tax exchange, you will have to hire a facilitator to oversee the process for you. This person will also handle all the paperwork for you, and will keep the funds from the sale for you until you are ready to purchase your replacement property. After you find a professional that can help you, you can save your investment property to a buyer. However, you should let the buyer know that you are participating in a tax-deferred exchange from the beginning. An accountant can go through the process with you to make sure that you are organizing your funds correctly, and it may also be a good idea to hire an attorney that can explain all the legal aspects of 1031 exchanges with you in a way that is thorough and easy to understand.
Once you know that you want to sell your property using 1031 regulations, you’ll have to find a replacement property within 45 days of the close of escrow. After this, you’ll have 180 days to actually purchase the new property that you’ve chosen. Again, you’ll need to make the seller of the new property aware that you are participating in a tax deferred 1031 tax exchange.
You can find out more about which types of tax exemptions you are available for using 1031 exchanges, as well as the property taxes that are required in your state when you visit www.irs.gov.