Real estate property exchange – Income tax deferral strategy
When it comes to incomes taxes, IRS makes sure they collect some from everybody, especially investors. However, The Governmental Body has implemented the 1031 Section, under which transactions are not a subject of strict income taxes. However, every investor must know some essential facts about these transactions. The crucial aspect every businessperson must know is they can freely exchange properties without paying taxes. However, below are those important aspects you should know if you consider making this kind of investments in the future.
The 1031 Section is exclusively for business purposes
If you are thinking you’re a lucky individual for having such privileges and consider switching your hose in California for one in Malibu, you should calm a little. These types of transactions are only for business purposes, although many have tried tricking the system. However, trying such moves might be risky and you might endanger the well-being of your entire family. Consider all implications, and never attempt doing so. If you have doubts regarding a transaction you plan, get in touch with a team of professionals handling this type of business. They can offer you all the guidance you need.
You must never lay hands on the money
As the name implies, these transactions are “exchanges”. Therefore, you must not be in the possession of the money resulted from them. Moreover, even if you do exchange properties, no money must result as a difference of market value from your exchange. If it does, it will be a subject to income tax payment, and avoiding that is the main reason you are managing such transactions. The name says it all: “like-kind”. This means you must swap properties with the same estimated value on the market, not of the same type.
You always need intermediaries when exchanging properties
Because you cannot be in the possession of the money at any point, and ending a transaction of this kind might take some time, you need a third party for taking care of the money until you find the desired property for a swap. For instance, you sell the property you own and start your search on the market to find a good property to buy in exchange. What do you do with the money, in such cases? You have a professional intermediary managing them until you find that exchange property. Moreover, many third parties have the necessary experience and expertise for helping you with the process of searching the market for a good property.
Here are some essentials you should take into account when proceeding to enter the real estate property exchange business. Such transactions are not difficult to make. However, as a beginner and not only, you need a third party helping you with them. Therefore, make sure you find a reliable company, who offers competent advices and has a lot of experience in the field. After all, they are taking care of your money. And remember: the possibilities are endless when it comes to 1031 property exchange.