Surprising things you might not know about 1031 exchange

Lately more and more people are talking about 1031 exchange, but only few of them know what this term implies and what steps the process involves. The main purpose of this exchange is to offer the owner the opportunity to avoid paying the taxes, but the condition is for the swap to be made according to some certain rules. Because the many people do not know what is a 1031 exchange, and this is why they ask for the help of a professional company in the majority of cases, to help them deal with the process. You, as a property owner should know that companies, realtors and even individuals take advantage of this exchange, so it is the time for you to try to find out more details about it, and use it in your benefit.

What is a 1031 exchange?

This is one of the most asked questions, by persons who are interested in finding more details about a simple way in which they can avoid paying taxes. Therefore, you should know that a 1031 exchange is a swap of one of your investments or businesses for another. You might state that the majority of sales are taxable, but in this case if you come up with a 1031, you will not have to pay one, or you will have to pay only a limited one. You do not have a limited number of changes, you have the possibility to change one investment for the other, how many times you want, the condition being to meet all the requirements of the law. You can have profit from every one of the changes, and you will not have to pay any tax until you decide to actually sell the property.

A 1031 exchange is not for your personal use

You should keep in mind this aspect because is one of the most important ones, which would help you meet the requirements of the exchange. This provision is used only for business or investment property, so you cannot use it if you want to swap your residence for another house. However, you can use the 1031 for swapping your vacation homes, the only thing is that you have to pay attention to details to see exactly what this implies. If you want to do this, it is advisable to ask for the help of a specialist.

You can opt for a “delayed” exchange

When analyzing the conditions of the 1031 exchange you would notice that it requires you to swap the property you have for another. Well, in the majority of the cases, you will find difficult to find exactly the type of property you want, and an owner who is willing to change its belonging to yours, therefore, this process might take some time. This can be used as a reason to delay the exchange. In this situation, you will have to collaborate with a Starker or three party, because they would act as a middleman. When you collaborate with this type of middleman, you benefit from the same advantages as when you directly swap the properties, only that the process requires more time.