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Author: 1031exchange Published: 2009-03-22 11:36:47 Last edit: 2009-03-04 07:21:28 Tags: 1031 exchange tax |
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Many investors make the mistake of selling their business or investment property and end up having to pay thousands of dollars to the government in capital gains taxes. What they may not know that there are tax laws that provide them the ability to defer all of the capital gains taxes on the sale of property which has been held as a trade or business - thereby retaining their gain.
The taxes you would normally need to pay on the sale of an investment property can be deferred (if not eliminated entirely) with this law. However, the money you make from selling your property must be used exclusively to purchase a like-kind property that you also intend to use for business or investment purposes.
When you take advantage of the 1031 exchange laws, you can save a lot of money, thereby allowing you to leverage your equity by purchasing even more property (which may have not been possible without the added tax savings).
A benefit to many investors, the 1031 exchange law has the potential to save you a boat-load of money, and is worth the time an effort to put to use. To start reaping these financial rewards, you much follow some procedures first.
First, it?s important for you to choose a well respected and professional qualified intermediary also known as a "Q.I.". Dealing exclusively with doing 1031 exchanges, a Qualified Intermediary is an expert with the facilitation of such a deal.
Your Q.I. provides a written agreement to change the transfer from and outright sale to an "Exchange" then transfers your relinquished property (that you are selling) and takes that money and uses it to purchase your replacement property on your behalf.
To qualify for your exchange, you will need to follow these rules:
1. Firstly, the investment property that you are replacing must have been used for investment purposes or use in a trade or business and must be "like-kind" (i.e. US real estate for other US real state).
2. 2nd, if you haven't yet done so, you must clearly identify your replacement property in writing to your QI it within forty five days. You will need to close on the sale of your replacement property within the allotted 180 day timeframe.
3. To defer your capital gains taxes, all of the proceeds from the sale of the first property must be used to purchase your new replacement property.
By following these rules you will be better positioned to make a 1031 Tax Exchange. This will be well worth it to you in the end, even if it seems a little complicated from time to time, the basic procedure is really quite simple. Go ahead and keep your money working for you by using a 1031 exchange to defer your capital gains taxes!
Investors in the U.S. can save a lot of money by using 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from the IRS.
Watch the video on 1031 exchange rules to learn more.
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