What Is The 1031 Tax Free Exchange?
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by: DarrenSmith
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Word Count: 393
Sometimes there's some uncertainty as to the qualifications for property termed as "like kind". A few examples of eligible properties comprise apartments, duplexes, single family rentals, raw lands and commercial properties. For instance, you can exchange a single family rental for raw land or a commercial building or even apartments and they can be exchanged anyplace in America.
Some property owners are leery of attempting a 1031 tax free exchange as they believe that the sale of the old property and the acquisition of the new property must be completed at the same time. But in reality the 1031 like kind exchange is almost never a two party, or two person trade. Many are delayed exchanges that make use of the 180 days allowed to complete the transaction, from the sale of the one property to acquiring the new property. However, you only have 45 days from the closing of the sold property in which to advise the IRS of the replacement property's identity.
The rules regarding 1031 exchanges are applicable any time you intend to sell a property that is not your primary residence (and conforms with the like kind regulations), and you plan to buy a property inside of 180 days after you close on the sold property.
Another attractive feature of a 1031 tax free exchange is that there is no limit on the number of properties that you can include in the same exchange. Of course, in order to retain some flexibility you may want to consider a separate one for each of the relinquished properties, but it is allowable to complete them at the same time.
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The 1031 exchange can be used by an investor who wishes to sell some of their investment property but they do not want to pay taxes on it. Section 1031-Internal Revenue Code will allow the seller to defer the taxes if they purchase another property that is the same price.
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