Section 1031 investments are all the rage currently. This section is contained in the IRS tax code and allows businesses and investors to decrease their tax liability when selling particular properties. In a delayed exchange, you can defer the payment of taxes on your capital gains by rolling them into the acquisition of like-kind property.
If you are unsure, you can consult qualified intermediaries like 1031 Exchange Place. These insured, bonded, or licensed companies facilitate your exchange. Here are the primary phases that constitute a delayed 1031 exchange:
Sale of Relinquished Property
Your 1031 exchange starts with a cooperation clause in the agreement to structure the transaction as a tax-deferred exchange. Your intermediary will then begin the exchange process and prepare all relevant documentation for the sale. After the paperwork is completed, the property is transferred to the purchaser.
Identification of Like-kind Replacement Property
Your exchange intermediary will hold the proceeds while you look for a replacement property within 45 days. You can identify many properties. However, their total market value should not exceed the cost of your old property. Under the 95% rule, you should acquire properties with at least 95% of the aggregate value of your sold property.
Purchase of Replacement Property
After identifying an ideal replacement property, you should sign a cooperation clause with the seller to handle your transaction as a 1031 exchange. The necessary documents should be approved in 180 days. Payment for the property using your sale proceeds is then made, completing the investment.
Now, you can appreciate the complexities involved in a 1031 exchange. Your choice of an intermediary makes the difference between success and failure. Due diligence is vital when choosing a mediator.