What You Need To Know About 1031 Exchanges
Unless your career is in finance or taxes, you more than likely don’t know all of the proper terminology and lingo of the Internal Revenue Code. Outside of a 401(k), most people are fairly limited in their understanding of these complex codes, and that goes for Section 1031 as well. For those of you who don’t know, Section 1031 is what we all a 1031 exchange and it is an exchange that can have tremendous tax benefits, specifically when you are selling investment real estate. Davidson Law Group wants to spend today’s blog post going over all the things that you need to know about 1031 exchanges.
1031 Exchanges Are For Investment and Business Property
One common misconception about 1031 exchanges is that they can be used for personal property. In essence, 1031 is an exchange of one business or investment asset for another. Therefore, you can’t simply use an exchange to swap your house for another. However, some personal property exchanges can qualify, depending on the property. Nearly all of these exchanges are with real estate and there isn’t any wiggle room with personal property, but there is a little bit of room for the few personal property exchanges.
Related Post: Five Benefits of 1031 Exchanges
Properties Must Be Like-Kind
What that means is that the properties have to be the same type of property. However, the rules are actually fairly liberal when it comes to 1031 exchanges because we are talking about investment property rather than personal property. This means that if the properties you are swapping are both investment properties, they will almost certainly qualify.
Related Post: 1031 Exchanges and Tax Exemptions
These Exchanges Are Often Delayed
With 1031 exchanges essentially being a property swap, there will naturally be some timing issues. The odds of you finding a person with the exact type of property that you are looking for at the exact same time as you file the exchange aren’t great. Because of that, a lot of these exchanges are delayed, which means that you have time to find a replacement property after selling yours.
However, you will probably be asking for more time. The 45-day rule states that you have 45 days from the time you sell your property to find potential replacements and the 180-day rule states that you have 180 days from the time you sell your property to buy at least one of those prospective properties.
Davidson Law Group Can Help
1031 exchanges can be confusing, complicated, and with the time restraints, fairly stressful. Davidson Law Group wants to help walk you through the process. Contact us today in Fort Worth, Allen, or Tyler.