We have gathered some beneficial information related to 1031 Exchanges so that you may receive incredible benefits of this powerful capital gains tax saving tool.
LOS ANGELES – Sept. 20, 2019 If you have an investment property that you’re planning to sell out, then you should know about the 1031 tax-deferred exchange. Here, you’ll find everything related to 1031 exchange – concepts, rules & definitions that you must know before planning 1031 exchange.
What Is 1031 Exchange?
Section 1031 of IRC (Internal Revenue Code), also known as 1031 exchange or a tax-deferred exchange, enables an investor to abstain from paying capital gains taxes on account of selling an investment property and reinvesting the proceeds into another like-kind property or properties of equal or greater value.
Situations When You Can Do 1031 Exchange –
Being an investor, there could be numerous reasons why you should opt for 1031 exchange. Some of the reasons are explained below:
• An investor can seek a property having better return prospects and may wish to diversify assets.
• The owner of the investment real estate always looks for a managed property rather than the one to be managed by himself.
• You may want to merge several properties into one or may want to break single property into several assets.
• Reset the depreciation clock.
Choosing A Replacement Property: Timing And Rules
Like-kind property is defined according to its attributes or nature and not its grade or quality. This means that there is a broad range of real properties that are exchangeable. The investor or the taxpayer can exchange Vacant land for a commercial building or multi-family building can be exchanged for industrial property or vice versa. The real estate property must be held for investment and not for resale or personal use.
To receive the complete benefit of a 1031 exchange, the replacement property should be of equal or greater value. The investor has to identify a replacement property for the assets sold within 45 days and then finalize the exchange within 180 days.
1031 Property Rules
● The three-property rule allows the investor to identify up to three properties as potential purchases regardless of their market value.
●The 200% rule allows the investor to identify unlimited replacement properties as long as the total value does not exceed 200% of the value of the property sold.
●The 95% rule allows the investor to identify as many properties as he wants as long as he acquires the property valued at 95% of their total value or more.
We believe that all the information provided above will help you in planning your 1031 exchange.