Study Section

July 20, 2018 at 1:59 am

Remember 2 Critical Factors When Pursuing a 1031 Exchange

Property For SaleCarrying out a 1031 exchange here in Utah is increasingly gaining traction as an incredible way to build a real estate portfolio. Insufficient capital often gets in the way of buying properties a provision in the tax code offers you a relief.

Under the Section 1031, you have the chance to use all your capital gains from one property in buying another property. The provision defers the capital gain tax, which can be as high as 30 percent indefinitely. That way, you have more capital towards your next purchase.

However, for the best results, you need to bear a few factors in mind.

Time is of the essence when finding a replacement property

As much as the IRS wishes to let you build your real estate empire, they can’t let you have all the fun. In fact, they put you on a short leash when carrying out an exchange. Naturally, you need to notify them of your intention so they can give you a go-ahead.

Once you have it, you have exactly 45 days to come up with a replacement property. See, under the section 1031, you need to exchange one property for the other of equal or greater value. If you miss this deadline, the exchange will fall apart, and you will lose your tax advantages.

Sealing the deal is also time sensitive

If you make it through the first hurdle, it is time to seal the deal. You have 135 days, or risk losing the tax deferment advantage. During this period, you must sell your current property, find a qualified intermediary to handle the sale process and close the deal on the replacement property.

For the best results, you need to have a buyer with ready financing lined up. The intermediary handles all the monetary transactions. Hence, you need to ensure that all the paperwork is in great order to before committing to deal to increase the chances of success.

With a little effort and commitment, you can grow your real estate holding with the help of section1031 of the tax code. You only need to adhere to the stipulated deadlines and rules to enjoy the tax deferment advantages.