How to Properly Use 1031 Exchanges
It used to be that only people who worked on taxes needed to know about 1031 exchanges, but they are becoming more and more a mainstream conversation. They can also be called a like-kind exchange or a Starker. Trading one business or type of investment for another one is the simple definition of a 1031 exchange. Doing it as a normal sale and then buy will mean taxation on both purchases, but doing a 1031 exchange helps you to avoid that expense. This can be done because you aren’t getting money for your investment, you are just trading it for another one. This isn’t a capital gain, so the IRS doesn’t make it taxable.
You will save money on the taxes, so this will help your investment to grow faster. There are no limitations for how many times or how often you can do a 1031 exchange from 1031Gateway. You can keep trading investment for investment as much as you want to. Each swap that you make, may give you a profit, but you can avoid the taxes until you cash out. When you do decide to cash out, you will only have to pay the tax on the final investment, not all of the other ones that led up to it.
If this sounds appealing to you, there are some things you should know. 1031 exchanges cannot be used on personal real estate. This rule only applies for investments and business property. If you make sure to understand all of the loop holes, you may be able to do it for vacation homes. Personal investments like a painting may qualify for this kind of a trade.
You aren’t limited very much by the term like-kind. You may fall into a trap if you don’t know the rules, but for the most part, you can exchange real estate for most other kinds of real estate. Trades with businesses is the same way. Starker exchanges refer to a specific type of 1031 exchange that is delayed. Since you may not be able to find someone with what you want who wants what you have, you can trade to a third-party who will then get what you want when it comes on the market. You never get the money, the third-party does, so it is still considered a trade. To learn more on how to properly use 1031 exchange, you can visit http://www.huffingtonpost.com/phil-jemmett/the-basics-of-a-1031-like_b_4639787.html.
To avoid the taxes with a delayed exchange, you will have to follow some rules. When you sell your property, you can never come in contact with the cash. It has to go straight to the third-party. You also have to make sure that you have designated a replacement property within 45 days of your property’s sale. This is just submitting in writing what you want the third-party to buy when it comes available. If you are okay with a couple different kinds of purchases, then you can designate up to three kinds of property that they can buy for you. Understand more about 1031 exchanges from this homepage.