3 Things to Consider Before Making a 1031 Exchange
If you are a landlord, you understand the importance of rolling along with rental income. When money rolls in, you need immediate and quick access to that cash to pay your bills and run your business.
Although selling and cashing out on your rental property sometimes works, you may need more money. That’s where the 1031 exchange comes into play.
In essence, a 1031 exchange allows you to sell your property with the understanding that you will purchase one or more properties. As you wait for the purchase, you can move on to other investment properties without worrying about taking a hit on your monthly cash flow.
Check out this in-depth guide to knowing what is a 1031 exchange for a better understanding.
1. 1031 Exchange Rules and Deadline
The exchange must have a structure for like-kind properties to be eligible for tax deferment. Additionally, exchange deadlines could be better. The investor must identify the replacement property within 45 days of selling the first property. And within 180 days, you must complete the transaction.
Also, to qualify, the investor cannot use any of the proceeds from the sale for personal purposes. You must hold all proceeds in a qualified intermediaries account.
The investor must also document all transactions. It includes identifying the 1031 exchange timelines and ensuring all costs comply with all 1031 tax guidelines.
Furthermore, you must address any taxes due on the sale of the original property to ensure full benefits. If you want to know more about 1031 exchanges, check out Startanexchange.com and be aware of all the conditions you need to meet to avoid complications.
2. Costs Involved in 1031 Exchange
These can include exchange intermediation and closing costs. Depending on the type of investment property, there may be additional taxes. There are other fees associated with the transaction that you must take into account.
Additionally, it is essential to determine the eligibility of a particular property for exchange. Real estate investments may not be eligible to be exchanged under 1031 Exchange rules, so these must be identified in advance.
Furthermore, investors should plan for the timing of their exchange, as they must complete the exchange in a specific amount of time. Working with an experienced 1031 exchange consultant is essential. It ensures that the transaction will go well and that you maximize the tax benefits.
3. Common Types of 1031 Exchanges
Before making a 1031 exchange, you should consider the types of exchanges they are eligible for. Common 1031 exchanges include simultaneous, delayed, reverse, and improvement.
A simultaneous exchange is when a business owner exchanges one property for another at the same time. Delayed exchanges are when the sale of the original property and the purchase of the replacement property take place at different times. Reverse exchanges involve acquiring the replacement property before selling the original property.
Furthermore, improvement exchanges involve exchanging a relinquished property for a replacement property of higher value. The difference will be made up of cash or other assets.
Knowing What is a 1031 Exchange to Maximize Your Real Estate Sale
All in all, there are many factors to consider before making a 1031 exchange. You need to know the ins and outs of the process and research the properties you would like to exchange. Though daunting, planning can put you in a great position. Consider consulting a finance professional today to make the most of your investment!
Have this article helped you out? For more information, check out the rest of our blog!
