The Right Way to Do a 1031 Exchange

propertyA 1031 exchange is a tax-deferred method of selling one qualified property and acquiring another like kind of property within a specific time frame. It is a tool to let go of a property today and exchange it with one you want tomorrow.

If you are considering a 1031 exchange for your land or property, consult an advisor or an expert to clear up further misconceptions and complications.

1031 exchanges that are done strategically can minimize risk to a real estate portfolio and reduce tax cuts. They can be used for investment properties but not for personal residences or properties that are primarily held for sale.

Delayed 1031 Exchanges

The sale and purchase of a property do not have to co-occur, as the chances of finding someone with the exact property you want and who wants the exact property you have are slim to none.

This explains why most 1031 exchanges are delayed. You can sell an investment property to anyone who wants it at the time and then wait to get an exchanged property you want.

The Qualified Intermediary (QI) or Accommodator comes in here. They serve as a middle-man who holds sale proceeds for you and later uses them to buy your chosen replacement property.

Permitted 1031 Exchanges

Exchanges are not just for big investors. Anyone who owns investment property should consider this kind of exchange, provided they have a good set of advisors.

Keep in mind that you cannot do a 1031 exchange with a property you hold only for personal use. You cannot, for instance, exchange your personal residence for another. There are, however, certain parameters you can use to exchange mixed use rental and vacation homes.

Consult with a QI or with your advisors to know if your land qualifies for a 1031 exchange and learn how to maximize its use.

Posted on by Administrator in Money Talks

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