Requirements to meet when applying for a 1031 exchange
If you are running a company, then you may have heard that more and more people think of using the section 1031 to avoid paying taxes. Investors, title companies and realtors use this section, because it is not restricted only to the real estate industry. In case you have not heard of this type of exchange, you should know that it is a tax-deferment strategy used by many investors. If you do not know if you can use this exchange or not, then you should get in touch with one of the 1031 exchange companies, specialized in offering assistance in cases like yours. If you want to use 1031exchange, then you should know that you could swap your property with a like-kind one. Your main question may be when you can use this type of exchange. Well, you should know that if you sell your investment property, you will have to pay capital gain taxes, even if you do not purchased it, but if you use this section, you will be able to defer the taxes.
You can swap only a business or investment property
This swap is applicable only if you want to find a new location for your business. You cannot exchange a personal property. So, if you want to swap your primary residence for another one, then you should know that you will not be able to do it. For example if you move from a country to another, you will not be able to swap your residence from your hometown with a new one in the town you move.
You have to find a like-kind property
In order to qualify for the exchange you will have to find a like-kind property. But as you can see this is a broad term and this means that the properties you can choose from differ in character, nature and quality. In terms of real estate, you can swap any type of property with another one, as long as they are not personal properties. Also, when you opt for this exchange, you have the possibility to swap your property for multiple ones, and vice-versa. If you want to get rid of more than one properties, then you can do it, and choose a single one as their replacement.
You are not allowed to receive boot
If you want the 1031 exchange to be tax free then you have to be sure that you do not receive boot. In case you receive boot, then it will be taxable, according to the gain you realize. You can carry out an exchange in which the property you choose is lesser in value than yours, but in this case, you should expect it to not be 100% tax-free. On the difference, you will have to pay taxes. This option is ok as long as you are not disturbed by the fact that you pay some taxes and make money in the same time. These are only some of the requirements you have to meet, but if you need more info, then you should talk with a professional.