What You Should Know About 1031 Exchange
Investing in property is something that never grows old. However, knowing property rules is important to make sure you are not making losses because of a poor decision. 1031 exchange is a powerful tool which makes sure people who sell properties do not have to pay taxes on the profits they get. One of the provisions in this requirement is that the property you buy after the sale should be an investment or for business. If you purchase a home or primary residence, then 1031 exchange rules will not apply and you will be required to pay the taxes.
Also, know that the tax is only deferred and not eliminated completed. Tax-free is a glorious term which some people are happy about without seeking to know what it entails. However, the beauty of it is that the taxes can be deferred forever if you keep investing in properties which exclude you from paying taxes immediately. Also, remember that the new property you are investing in matters in that it needs to be of the same value as the one you have sold. If there is a surplus it will be taxed. However, any surplus can be invested back in the property in terms of development or repairs.
1031 exchange has a time frame which has to be adhered to if you want to avoid hefty taxes. You need to buy the new property within 180 days. This is 6 months and it is more than enough time for you to find a property that meets the objectives you have.
Given that it is a long time, many people push the property search and they are caught off-guard when the time lapses. Also, you may be forced to get delaware statutory trust property you did not want in the first place in the rush to get one.
Using the cash as you wait to get the new property to be identified is a bad idea because you may have to pay taxes. If you do not trust yourself to keep the cash untouched until the exchange is completed, you should get an intermediary to hold it for you. However, make sure you have chosen great and trustworthy intermediaries and advisors. Things can go wrong if you make a lousy decision and some time you may lose everything. Identify a great professional to work with because this will not just give you peace of mind but will ensure you make the best investment decisions. For more facts and information about 1031 exchange, visit https://en.wikipedia.org/wiki/Like-kind_exchange#Simultaneous_three-party_like-kind_exchanges.