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1031 Exchanges Make Taxes Go “Bye Bye”
By plrprousers | April 6, 2009
So you are finally ready to sell your old investment or business property and invest in something new. But you definitely do not want to have to share your profits with the IRS, who is no doubt going to want to their cut.
There is a way to prevent this from occuring. Investors can thank the IRS for Section 1031 because it provides an out for real estate investors, property investors, and business owners by allowing them to defer their capitial gains taxes indefinitely by purchasing a property that’s similar to the one they are giving up. The 1031 tax exchange law sees no gain or loss if you sell your property used for investment or business, as long as the proceeds are used to reinvest in a another property like yours.
The Benefits of the 1031 Exchange Law:
A) The property owners are able to eliminate taxes they would otherwise have to pay from selling their property.
B) The deferral of capital gains taxes keeps the money working for the owner, by encouraging them to buy more investment property.
Section 1031 laws do NOT include: Bonds, Loans, Stocks Certificates of Trust, Partnership Interest, Personal Residences
…The good thing is that the 1031 Tax Exchange Law states that you don’t necessarily have to exchange or trade your property for an exact match, in order to avoid from having to pay taxes. Actually you can sell your investment property and use the proceeds you make to invest in another property that is like-kind.
To qualify for a section 1031 Tax Exchange – be sure of this:
A) The net sale price of the property you are buying must be equal or greater than to that of the property you were giving up.
B) The proceeds from the investment property you are relinquishing, absolutely must be used to buy the new property you want.
C) Now the investment property you replace your old property with must be like-kind. An example of this is when your old property is used as an investment property or in a business – then property you are replacing it with needs to be replaced with another like-kind property.
You can begin exchanging your property as long as you have made sure that the requirements are met.
1. Firstly, you will need to choose a qualified intermediary to facilitate your 1031 exchange and mange all of the paperwork.
2. Sell your investment property to the person who wants to buy and make sure you let them know that you are doing a tax deferred exchange.
3. Within 45 days or less identify your replacement property.
4. Then it’s very important you claim the replacement property within one hundred and eighty days.
Using a 1031 tax exchange can sometimes be a seemingly long process, but it’s definitely well worth it with the money you will save.
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