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Information You Need To Know About 1031 Exchange Properties

Nowadays, investors and owners only focus on buying and selling real estates that they fail to take advantage of the 1031 exchange. In order for us to understand the 1031 exchange properties better, this article will talk about some important information about it as well as the benefits it will give to the people. The majority of real estate traders and investors just use their earnings for other purposes or they just keep it and save it for future use. Unlike normal sales which are taxable,031 exchange can actually help you when you use your earnings in buying another piece of real estate because, with its help, you sales will be non-taxable.

1031 exchange is also known as tax-deferred exchange. Because they use it as part of their strategy in their business, real estate investors are knowledgeable when it comes to this area. The process simply goes like this: you have to sell a qualified property then in a specific time given to you, you need to use the earnings you made to buy or exchange it for another property. So the business transaction is actually treated as an exchange and not as the normal buying and selling. You may think that it is kind of against the law or illegal. There is no need to think that way because the truth is, the law is very much well-informed about it thus it is not against the law. However, do not think that you can do this, however, you like since this one is still governed by rules and regulations. When these policies are violated, there will be an increase of tax liability for the person responsible for the exchange. The same value for the two properties during the exchange must be observed.

Here are the 1031 exchange properties’ two simplified rules:These are the two major rules concerning 1031 exchange properties:

1. The property that will be the replacement must be greater or equal to the property that you sold’s total net sales price.

2. In acquiring the replacement, all of the equity received from the sale must be used.

If these rules are violated, the person who started the exchange will be liable to pay the tax for the acquisition of the estate. In 1031 exchange properties, a time-frame is also involved as what I have mentioned earlier. This time-frame can either be the Exchange Period and the Identification Period. The initiator must identify and point out the property he wants to take as an exchange during this Identification Period. This time-frame starts from the day that the property was sold and runs for 45 days (weekends and holidays are already included). The Exchange Period, on the other hand, runs for 180 days after the successful transfer of the first property (or after the tax return due date in some cases).

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