1031 Exchanges – A Need To Know Guide

A key topic that should be very important to real estate investing professionals is that of 1031 tax exchanges. If you are really serious about investing in real estate it will benefit you to study and learn the 1031 exchange rules in depth. This way you will be investing with the know how to get the best tax deferrals.

The 1031 tax exchange rules need to be followed closely. Deadlines are very important. You are required to buy new real estate by 180 days prior to registration of the sale and prior to the next filing deadline. Another catch is that there is a 45 day identification time period for you to decide which of three methods you want to use to mark properties you are interested in for exchange.

Your goal is to limit the total amount of deferred taxes. This can be accomplished by moving the entire amount into a new property investment. According to the tax code, “1031 tax exchange rules”, it is not possible to take money generated from a sale, and use it for alternate, unrelated expenses. Therefore, you need to be particularly specific with your documentation. Keep a specific set of books dealing with the exchange, and write separate well documented checks for each part of the transaction.

If you live in a different state to where the property is sold, many states mandate that the closing agent or real estate agent must withhold a percentage of the sale price to make sure that the state receives any tax revenue due, because tracking down these non residents later can be very difficult.

The real property tax act of 1980 requires that foreigners withhold ten percent of the sales price for this reason. Some states will waive this requirement that it why it is very important to know your state’s stand on this issue.

You must use a qualified intermediary who completes all the necessary paperwork and filing and must adhere to the 1031 tax exchange rules. There are many places on the internet where you can find 1031 exchange information and you can even find qualified intermediaries in your state.

Visit http://www.investing-secrets.com/1031-exchange/recommends/article-1031 is you’d like to get your very own version of this article for your website.

If you’re a real estate investor, you simply have to study your 1031 exchange rules. It could save you literally thousands of dollars in taxes, and could help you avoid many of the pitfalls associated with 1031 exchanges. By doing a little research you can maximize your tax deferrals. You must purchase your replacement property only 180 days after the transaction, and all of the money from the sale of your old property must be reinvested in the new property. Go online to find the most current 1031 tax exchange information and find a qualified intermediary to help you with the paperwork.

- David E. Williams

This entry was posted on Friday, April 18th, 2008 and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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