1031 Exchanges: Important Rules To Remember

Important Rules to Remember with 1031 Exchanges

1031 exchanges are a fantastic way for your business or your investments to make changes without cashing out your assets or paying taxes. Essentially, a 1031 exchange is a swap of one business or investment asset for another like-kind asset. There aren’t limits to how many times you can use this type of exchange and you can actually profit from these swaps if you do them correctly. However, there are some important rules to remember and they are rules that people often confuse. In today’s blog post, Davidson Law Group will explain these rules and how they apply to people who are looking at 1031 exchanges.

Related Post: Understanding the Timing and Rules of 1031 Exchanges

Business Exchanges Only

Arguably the biggest misconception about 1031 exchanges is that they can be used for any property, investment, or asset. That idea, however, is not true. 1031 exchanges are reserved for investment and business property only, not personal property. There are some exceptions on personal property that can be seen as a business asset, but you need to check before banking on an exchange. When it comes to this rule, the most important thing to remember is that you can’t exchange a personal residence for another one. If it is an investment or a business property as well as being a personal residence, it may be possible. But generally speaking, it has to be a business or investment property.

Related Post: Everything You Need to Know About 1031 Exchanges

It Must Be Like-Kind

This is another rule that is misunderstood. To start, a 1031 exchange has to be between residential properties that are for business or investment, as is true with all assets in these exchanges. However, like-kind is not increasingly specific. In fact, it is actually pretty broad. This means that you don’t have to exchange an apartment building with another apartment building. As long as it is property, it qualifies.

You Need A Replacement Property Before Swapping

While these exchanges give you a grace period to find a new property, you must have a replacement property lined up for these exchanges to be legitimate. There are two key timelines to remember here. The first is a 45-day grace period, to which you have 45 days to find a new property after the sale of your old property. The second is a 180-grace period, to which you have 180 days from the sale of your old property to close on your new property.

Davidson Law Group Can Help With 1031 Exchanges

1031 exchanges can be a very valuable tool as you grow your business. However, they can also be complicated, and you don’t want to commit to something that you may not fully understand or have the time to fully prepare for. To learn more of what you need to know about 1031 exchanges, contact us today in Fort Worth, Allen, or Tyler. Ask about our free consultation.