The Top 4 Things You Need to Know About a 1031 Exchange

Agricultural propertyAre you selling a piece of agricultural land, residential property, or any other type of real estate with plans to reinvest in a new one? Are you new to the whole process and are looking for some guidance on what’s the next right thing to do? Then you might want to consider the 1031 exchange provision. The Section 1031 of the Internal Revenue Code allows a property seller to defer capital gain taxes from their sale whose proceeds are to be invested in a new property.

Experts from 1031 Exchange Place believe that the benefits of such an exchange will always outweigh its disadvantages. Here are the most basic things you need to know about a 1031 exchange.

1. A Replacement Property is Required

One of the requirements of this exchange is a replacement property that you have to declare within 45 days of selling your property. This must be given in writing to your qualified intermediary and must specify the details of the property you plan to acquire.

2. Know What “Like-Kind” Actually Means

Section 1031 mentions that your replacement property must be “like-kind,” which actually has a broad meaning. For example, you can exchange a piece of raw land for an apartment building. The rules are quite lax, so make sure to consult with a 1031 expert to make sure you don’t run into legal mishaps in the future.

3. It’s Not for Personal Use

This exchange is only meant for business and commercial properties only. You’re not allowed to sell your home through a 1031 exchange just because you want a new one.

4. You Can Have More Than One Designated Replacement Property

You’re allowed to designate more than one replacement property when you declare it in writing as long as you close the exchange on one of them.

A 1031 exchange can be complicated if it’s not executed properly from the beginning. If you decide to do this, seek the help of professionals who can help you make the process simple and risk-free.