Why No One Talks About Options Anymore

Important Things You Must Know About 1031 Exchanges

Tax nerds could actually tell you a whole lot of info about Internal Revenue Code Sections but most people could never get more than 401(k). (As you may have already figured it out, your workplace retirement savings plan is actually named after a particular section in the tax code.)

So what does 1031 really mean? Basically, a 1031 exchange, which is also called as a like-kind exchange, by the name itself, it is the exchange of an investment or business asset to another. Although you might have known of most swaps being taxable as sales, if the exchange is within 1031, you will either be required to pay limited tax or you may actually have no tax at all at the time of the exchange.

As an effect of this, you are now free to change the form of your investment without worrying yourself on things like recognizing or cashing out a capital gain. And this will then allow your investment to grow with deferred tax. The best thing is that you don’t have to worry about how many times can you do a 1031 because there’s actually no limit to it.

However, the process of doing it is a whole lot complicated which is why it would be best that you hire a professional to help you do a 1031. Below are some very important things you should know if you’re considering a 1031 or just curious about it.

1031 is in no way for personal use

The provision is specifically for investment as well as business property, which means that you can’t actually swap your primary residence for any other homes. You may find ways wherein you can use a 1031 to swap vacation homes, but you should also know that doing so can be a lot trickier than you can imagine.

Some personal property qualifies

Majority of 1031 exchanges deal with real estate. But some personal property can qualify for some exchanges (like for example, a painting).

“Like-kind” is quite broad in meaning

Most of the exchanges done is of “like-kind” which may not actually mean what you supposedly think it means. With this exchange, you can actually exchange a ranch for a strip mall, or even an apartment building for a raw land. The rules here are not that limited to a specific meaning. But again, there could be traps everywhere if you proceed without an expert helping you.

You can choose to do a ‘delayed’ exchange

These kind of exchanges are simply the swapping of a property of one person for the property of another person. But there is a really slim chance for you to be able to find that person with the property that you want who wants the property that you have.

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