1031 Tax Exchange Property

The 1031 Exchange process can save you a lot of money on capital gains taxes, but it can also be very confusing and time consuming.

There are many 1031 Exchange details that need to be gotten right the first time or the 1031 Exchange may be in jeopardy. By using tax exchange property tips and twists you can make your 1031 Exchange move much smoother, quicker, and easier.

The best thing you can do if you are planning on using the IRS 1031 Exchange is to locate potential replacement properties before you find a buyer for your existing property investment. This can help prevent many problems down the line in case you have trouble finding a suitable replacement property.

In order to qualify for a 1031 Exchange, you must meet four distinct requirements. All of the funds generated from the sale of the existing investment property must go to the replacement property. You can not use some of the proceeds to buy a replacement property and some of the proceeds for other investments or ventures.

The value of the property you are investing in as a replacement must be equal to or greater than the value of the property you sold. You cannot sell a valuable property and buy a less valuable property using the saved money for other ventures.

You have to use a middleman as an independent third party that mediates between you and the IRS during the 1031 Exchange process. This middleman must be a Qualified Intermediary and have no vested interest. This Qualified Intermediary prepares all of the documents that link the sale of the investment property and the purchase of the replacement investment property.

The exchanged properties must also be of a like kind. In other words, the properties must both be true investment properties, not the sale of an investment for the purchase of a home the investor will live in. However, the properties do not have to be of the same type. You can exchange an apartment complex for an office building or vacant lot.

Part of the 1031 Exchange process is identifying the replacement property to be purchased. You have forty five days to do this after the close of escrow on the property that is being sold to be replaced. The replacement property must be fully acquired within a hundred and eighty days of the close of escrow of the sold property.

When identifying a replacement property you have to follow one of three rules. You can identify up to three potential properties for investment, you can use more than three properties if the total value of the properties does not exceed two hundred percent of the value of the sold property, or you can use a property with a value of at least ninety five percent of the value of the sold property.

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