The ones who still do not know what a 1031 exchange is, should know that this is the name given to the action of changing an investment or business property for another, with the purpose to avoid paying taxes. Through this process, owners have the possibility to change the form of their investment without having to pay any tax or cashing out. There is not a limit on how many times a person can use it, because the law offers you the possibility to change the real estate you have for another one as many times you want, and you will not have to pay the taxes, until you do not decide to sell it. In case you do not know what this process involves, and how you can benefit from it, you can ask for professional help offered by companies like kbexchangetrust.com, because the specialists from there would be able to offer you all the info you need. Here are some of the conditions you have to meet in order to be able to apply for the exchange.
Use the property as an investment not for personal use
If you want to be able to use the 1031 exchange for not paying the taxes, you should know that the main condition is to use it as your business or investment property, not for personal purposes. You have to keep in mind that you will not benefit from it, if you want to change your residence, but there are some cases when you can apply for it for some of your personal properties. If you want to convert your personal residence into an investment one, you can do a 1031, but it is highly recommended to ask for professional help.
Rules implied by a delayed exchange
Because it is quite complicated to find a property you like, when you want to change yours, and that the majority of owners are not willing to change their properties, because they would rather sell them, you will have to opt for a delayed exchange. In this situation, you will have to collaborate with a middleman, who would have to hold the cash after you sell your property, and who would buy the other property for you. You should know that the 1031 exchange requires specifying the property you want to purchase within 45 days until the day the intermediary receives the money. You have the possibility to specify three properties, but you have to choose one of them.
Close the change within six months
Once you designate that you want to use this option, you must close the deal for the new property within 6 months of the sale of yours, from the day of sale. The 45 days are included in the six months period, so you have to pay attention to the time deadline, to be sure that you are able to avoid paying the taxes by using the 1031 exchange. In case there are money left after the change, the intermediary would pay it to you, and you will have to pay a tax on them.