Mind of Money

August 22, 2018 at 7:36 pm

Here’s How You Can Ensure a Successful 1031 Property Exchange

Couple looking for home propertyIt might seem strange, but the government is your ally when investing in the commercial real estate. The state applauds your effort to house the masses, and provide office spaces for workers and manufacturers. To this end, the Internal Revenue Service or IRS makes concessions in the tax code to help you grow your investment in the sector.

Under Section 1031, you can defer paying taxes on capital gains if you reinvest the proceeds from a sale back into the commercial real estate sector. For a successful 1031 exchange in Idaho, you need to take a few precautions, notes 1031 Exchange Place.

Hunt for a Replacement Property Early

As with every property deal, you’re looking to build equity as quickly as possible. In a vibrant market, such properties are in short supply. Hence, it might take you several months to find the ideal replacement property when looking to make an exchange.

Given that you have 180 days to seal the deal, time is a luxury you can’t afford. The countdown begins once you close the sale on the current property. For the best results, begin your search long before putting your property on the market. That way, you can beat both the 45-day and 180-day deadline.

Have the Financing Ready

A property exchange allows you to buy properties worth up to twice the value of the current property. In such a case, it might mean that you’ll need a line of credit to finance the remaining amount. To avoid undue delays when the countdown timer is running, get pre qualified for a loan.

Otherwise, if the money doesn’t come through on time, the exchange falls through. If that happens, you’ll not only lose the opportunity but also have steep capital gains to contend with. To add insult to the injury, you’ll be saddled with costs incurred during the failed exchange process.

Taking part in a 1031 property exchange is a credible way to improve your real estate holding. However, you need to tread carefully to avoid common pitfalls that could ruin the entire process.