One of the hottest topics investors and businessmen are discussing is the 1031 exchange. It is also called the “Like-Kind Exchange” or the “Starker” and is simply defined as the swap of one investment, property, or business for another.
The 1031 exchange allows businessmen and property owners to do the swap without being taxed, or at least get a much smaller tax. There are rules that you must follow to get approved and avoid getting repealed and today, 1031 Exchange Place is going to discuss what those are.
1. The Exchange
Despite the term “Like-Kind,” you definitely can exchange your business or investment for a different type of property.
For example, you can exchange your apartment building for a strip mall, a raw land, or even for a ranch! You just have to make sure that you are eligible for the exchange and that the investment or business that you are exchanging for is qualified for 1031.
2. Delayed Exchange
Finding someone who owns the property that you want and them wanting your property in return can be difficult, which is why delayed exchanges are acceptable.
You would have to find a middleman to hold the cash after you sell your property, That middleman is considered as the intermediary, which will be then assigned to buy the replacement property using the escrowed cash.
3. Replacement Property
Since we have talked about the delayed exchange above, we should then talk about the timing rules that you would have to be aware of when it comes to this type of exchange.
The exchangor must identify the replacement property that he wants to acquire within 45 days, and the transfer must be closed and done within 180 days. It is possible to designate three properties, as long as you make sure that you eventually close one of those.
Knowing the DO’s and DON’Ts of a 1031 exchange will save you from getting repealed when applying for one. Do your research and follow the rules to get approved ASAP.