If You Read One Article About Taxes, Read This One

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A Few Things that You Should Know Regarding the 1031 Exchange There are those investors who are quite wise to their tax benefits from the 1031 exchanges for several years. There are also people who are only new to the game and they actually wonder what all the fuss is about. They would hear realtors, investors, attorneys and others mention such but they are certainly not very clear on what the process actually includes. Well, to simply put it, the 1031 exchange would let an investor swap a business or investment asset for another one. Under such normal circumstances, the sale of such assets would actually incur tax liability on any capital gains. However, if you meet the requirements found in section 1031 of the IRS tax code, then you can actually defer the capital gains tax. However, it is quite important to take note that such 1031 exchange is actually not a tax avoidance scheme. If you are going to sell the business or the investment asset and you don’t replace this with another property, then such capital gains taxes will be due. There are so many nuances to the 1031 exchange and this is the reason why it is really wise to seek some help from such professional experienced with the transactions. Before you try the 1031 exchange yourself, you must know a few things and get to understand the basics.
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You must know that this is not for personal use. Though it can be tempting to consider trading up the primary residence and also avoiding capital gains liability, the 1031 is just available for property held for business or the such investment use.
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There are some exceptions to such personal use prohibition. Just similar to most things in the IRS code, you should keep in mind that there are exceptions to the rule. The personal residences don’t qualify, you can also successfully exchange the personal property like the interest in a piece of artwork or tenancy-in-common. Keep in mind that the exchanged property has to be like-kind. This is actually an area that would sometimes confuse the new investors. Such term like-kind doesn’t mean exactly the same but this would mean that the exchanged property must be similar in scope and use. The IRS rules may be liberal but there are so many pitfalls for those who are not so careful. You must also remember that the exchanges don’t actually happen concurrently. One really important benefit is that you can sell the current property and have around six months to close the acquisition of such like-kind replacement property. This known as delayed exchange. If you like to complete this exchange, then you need the help of such qualified intermediary.