The 9 Most Unanswered Questions about Taxes

What You Must Know About the 1031 Exchanges Some investors have been wise to such tax benefits of 1031 exchanges for a number of years. There are also people who are only new to the game and they actually wonder what all the fuss is about. They hear investors, realtors, attorneys and others say this but they are not very clear on what the process would include. Well, to simply put it, the 1031 exchange would let an investor swap a business or investment asset for another one. Under such normal circumstances, the sale of such assets would actually incur tax liability on any capital gains. However, if you meet the requirements found in section 1031 of the IRS tax code, then you can actually defer the capital gains tax. But, it is really important to note that the 1031 exchange is not a tax avoidance scheme. When you would sell the investment asset or the business and you won’t replace this with another property, then you will pay for the capital gains taxes. There are really many things that you may not understand with the 1031 exchange and such is the reason why it is wise to ask for help from the professional who is experience with such transactions. Before you try the 1031 exchange yourself, you must know a few things and get to understand the basics.
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You need to remember that this isn’t for personal use. Though you would get tempted to think of trading your residence and avoid dealing with the capital gains, such 1031 is jus available for the property that is held for the business or the investment use.
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There are some exceptions to such personal use prohibition. Just the same with a lot of things in the IRS code, the are exceptions to the rule as well. Know that personal residences don’t actually qualify, you may a successfully exchange such personal property like tenancy-in-common or that piece of artwork. You must also keep in mind that such exchanged property should be “like-kind”. This is one area that those new investors find confusing. Such term like-kind doesn’t mean exactly the same but this would mean that the exchanged property must be similar in scope and use. The IRS rules may be liberal but there are several pitfalls for those who are not quite careful. You should also keep in mind that the exchanges don’t happen at the same time. A very important advantage is that you may sell the present property and get about six months to close such acquisition of the like-kind replacement property. Such is termed as delayed exchange. You must get the help of such qualified intermediary when you like to complete the exchange.