What 1031 exchange rules you should follow?

You would find the 1031 exchange defined in the IRS Code, if you are interested in finding out more details about it. This exchange allows you as an investor to defer paying the capital gains taxes on a business property you decide to sell, by buying another property with the profit gained by the sale of the first one. So, if you are interested in this type of action, it is advisable to contact a company which is specialized in statutory trust processes, because you would need support during this period, to know exactly what steps you would have to follow. Specialists state that 1031 exchange is able to allow you as a real estate investor to do your investing without incurring the tax liability. Traditionally, when you are opting for this type of exchange you would have to swap your property with a similar one, but there are small chances for you to find an owner who wants to change the property they have with yours. Here are some rules that would guide you through the process.

Find a like-kind property

When you want to sell your property with the help of this exchange you have to find a like-kind one, and this is a broad term, because it requires for the two properties to be the same considering their nature or character but it is not important if they differ in quality or grade. When it comes to real estate, you have the possibility to change yours with any type of property, as long as it is not a personal one. But you have to keep in mind that the original property and the replacement one have to be within the U.S. A. also you have the possibility to exchange multiple ones for a larger one, or vice versa. Make sure you collaborate with a qualified intermediary, if you want to have no issues in the process.

Only business or investment properties qualify

You should make sure that you apply for this exchange only when you intend to buy another business property, because it is not applied to personal ones. You just cannot swap your residence for another, so do not try to do it.

The new property has to be equal in value or greater

The main goal when using the 1031 exchange is to avoid paying any taxes when you sell your property. You might not know but the IRS requires that the value of the properties that are implied in the exchanged to be the same, or the new one to be listed at a higher price than the one you sell. If the case were different from this, you would have to pay some of the taxes. Do not forget that the broker’s fee and inspections on the new property are included in the cost. You do not have to get in the possession of the money you receive for your property, so you would have to work with an intermediary to make sure that the exchange meets all the rules.