Are you looking for an investment in Minnesota that not only guarantees a steady flow of income but also pays higher returns? If that so, you might be interested in knowing about 1031 exchange Minnesota. A 1031 exchange is a unique investment strategy that lets you swap any investment property for another and defer capital gain taxes imposed on the transaction. Using a 1031 exchange, you can replace a non-performing asset with a high-performing asset or swap a multi-family property with retail property, and that too, without paying any capital gain tax.
However, to qualify for a 1031 Exchange, You must abide by the 1031 exchange rules established by the IRS.
1031 Exchange Rules in Minnesota –
Whether you’re in Minnesota or in anywhere else in the United States, 1031 exchange rules remain the same for you. These rules don’t change with states. Here are some major rules of a 1031 exchange –
- The property you sell (relinquished property) and the property you acquire (replacement property) must be ‘like-kind’ or similar. You may use them differently.
- The value of both properties must be equal. If you sold your relinquished property for $10,00,000, the cost of the replacement property must also be $10,00,000.
- Properties involved in a 1031 exchange must be held for use in trade, business, or for investment purposes.
- Every 1031 exchange investor must hire a Qualified Intermediary (QI), also known as a facilitator.
- 1031 exchange investors are not allowed to touch the sale proceeds. It must be kept with the Qualified Intermediary in a third-party account or escrow account.
- Debt on the replacement property must be equal to or greater than the debt on the relinquished property.
Rule of Time In 1031 Exchanges –
Time is crucial when you talk about 1031 exchanges. The IRS has strict rules to ensure that every 1031 exchange is completed within the specified timeline. When doing a 1031 exchange, you must keep a watch on the deadlines, which are –
- 45-Days Identification Period – You get 45 days in the early phase of your 1031 exchange to identify a replacement property. As soon as you park your investment property, the IRS requires you to identify one or more replacement properties within 45 days.
- 180-Days Exchange Period – Your 1031 exchange should not take more than 180 days or six months. From signing the 1031 exchange agreement to closing the transaction, everything must be done within 180 days. No extension shall be given in case an investor fails to meet any of the deadlines.
Note: Due to COVID-19 Outbreak, the IRS has increased the identification and exchange period to July 15. If you have signed a 1031 exchange agreement on or after April 1, 2020, you can submit your identification till July 15.