What Properties Can Be Used For a 1031 Exchange?

In addition to the strict time limitations discount meridia 1031 Exchanges, there are certain properties that can be used. These properties must satisfy the Internal Revenue guidelines.

The idea behind the 1031 Exchange provision of the Internal Revenue Tax Code buy Ritalin that when a Real Estate property is sold and the proceeds of the sale are used to purchase a property of like kind, no real taxable income is being generated. What is actually happening is that no form of investment is being exchanged for another. This allows the tax payment to be deferred.

This is a process that is considered no different than shifting your investment from one fund to another within a 401K or other type of tax deferred retirement fund. In this case, one Home owner secured loan fund is being sold and the proceeds being used to buy another. The only difference is that while the exchange of mutual funds or other holdings in a retirement fund can be exchanged quickly, Real Estate transactions require a rather longer closing process. This is why taxpayers are allowed 45 days to identify the new property and 180 days to complete the transaction.

What properties can be used for a 1031 Exchange? The property can be just about any form of Real Estate. It is the purpose the Real Estate is being held that determines the suitability of it for inclusion in a 1031 Exchange. The property must be held for a business purpose or another income generating reason. A rental property would be an example of an income generating purpose. The property can also be held for investment purposes. This is a rather general concept, but it no longer applies to a personal residence. Although at one time, a personal residence was considered as being an investment, the Tax Reform Act of 1997 changed this.

It is important to understand the concept of like-kind properties. This does not Space Patrol physical similarities at all. It refers to the purpose the property is being held. The 1031 Tax Code does exempt improvements of properties already held by the taxpayer. For example, you could not sell a home used for rental income and use the funds generated to build a new rental home on a vacant lot that you already own. Although this appears to be a like-kind exchange, the ownership of the lot makes it an acs student loan consolidation and not a new purchase.

It is absolutely essential that a tax professional be consulted to insure that the property that is planned to be the exchange property qualifies under the 1031 rules. The Internal Revenue Service will not be sympathetic to good intentions or honest mistakes anymore than they are forgiving of exceeding the time limits for the identification and completion of the transactions. The tax implications of major 1031 Exchanges are quite serious and it is necessary to be very sure of what you are doing every step of the way.

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