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1031 Exchange Lowdown Guide By Mansi Gupta 2006-06-30 A 1031 exchange or Like kind exchange is defined by section 1031 of the Internal Revenue Code or the IRC. According to IRC if an asset, most often some form of real estate such as land or building is sold and the proceeds of the sale are re-invested in a similar asset then there is no gain or loss and the deferment of the capital gains taxes is permitted.
In order to qualify for the 1031 exchange, a set of rules is to be followed. Firstly both the relinquished as well as the replacement property must be held either for investment or for productive use in a trade or business. It is not possible to exchange a personal residence.
Secondly make sure that the nature of the assets is the same. For instance real property must be exchanged for real property and nothing else, personal property is to be traded with personal property only.
Thirdly the proceeds of the sale must be invested in a like kind of asset within 180 (property must be identified within 45 days) days of sale.
A 1031 exchange is a perfect way to suspend the taxes that are immediately due after the first sale. For instance if an investor purchases a residential property for say $250,000 and sells it for $30,000 after 5 years, the profit of $50,000 which he incurs will be subject to capital tax. But if the profit so accrued is invested in another similar kind of commercial real estate, there will be no taxation on it. So his taxes will be deferred to some date in future.
A 1031 exchange is akin to an IRA or 401K-retirement plan. When the assets are sold under the tax-deferred retirement solutions, the taxable capital gains would be kept in abeyance till they begin to cash out of the retirement plan. The tax-deferred exchanges or real estate investments also run on the same principle for till the time the money keeps on rotating i.e.
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re-invested in some or the other real estate, the capital gains taxes are subject to suspension. The time an investor makes up his mind to follow a 1031 exchange, he should understand the process carefully with the help of a Qualified Intermediary. A Qualified Intermediary or an Accommodator is a corporation that performs the task of facilitating the 1031 exchanges. It is better to contact a Qualified Intermediary as soon as possible. After you acquire complete information from the QI, display your investment property in the market. Once the offer to purchase the investment property is accepted, escrow for the sale is opened and preliminary title report is developed and produced. Following this the QI sends required exchange documents to escrow closer for signing at property closing. The moment the escrow is closed on the renounced property, according to the law within the first 45 days the investor has to identify replacement property. After a time of 180 days from the time the escrow closed, investor closes on the replacement property that was identified by him and hence the task of exchange is over. The primary problem in 1031 exchange is the identification of the replacement property within tenure of 45 days after the sale of abandoned property. The extension to the 45 days is only on the front end and is possible with judicious planning about alternatives before the closing of the sale. Article Source: http://www.upublish.info Tags: Articles Taxes **ARTTECHNORATI** Free Articles on Taxes and many other topics - Add this category to your RSS Reader
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About the Author:
Mansi Gupta
Mansi gupta recommends you visit www.1031exchangelowdown.com/news/index.html for more information on 1031 exchange information. Free Articles on Taxes and many other topics
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Summary Box: Mortgage rates hit low of 4.54 pct.
(AP)
AP - RATES KEEP FALLING: Mortgage company Freddie Mac said the average rate for 30-year fixed loans this week was 4.54 percent, down from 4.56 last week.MetLife posts Q2 earnings of $1.5 billion
(Reuters)
Reuters - MetLife Inc , the biggest U.S. life insurance company, posted a second-quarter profit of $1.53 billion, helped by investment gains.Mortgage rates hit low of 4.54 percent
(AP)
<p><a href="http://us.rd.yahoo.com/dailynews/rss/personalfinance/*http://news.yahoo.com/s/ap/20100729/ap_on_bi_ge/us_mortgage_rates"><img src="http://d.yimg.com/a/p/ap/20100729/capt.1d86aba1676a408f86dce9b46d4d411d-1d86aba1676a408f86dce9b46d4d411d-0.jpg?x=130&y=45&q=85&sig=Wp6t5ur_C9SCu8MC882F0w--" align="left" height="45" width="130" alt="In this photograph taken July 26, 2010, new townhouses for sale are shown in Beaverton, Ore. Mortgage rates dropped to the lowest level on record for the fifth time in six weeks, making homebuying and refinancing the most attractive in decades for those who can get loans. (AP Photo/Don Ryan)" border="0" /></a>AP - Mortgage rates are the most affordable in decades for those who can qualify for a loan.</p><br clear="all"/>Citigroup settles charges over misleading investors
(AFP)
<p><a href="http://us.rd.yahoo.com/dailynews/rss/personalfinance/*http://news.yahoo.com/s/afp/20100729/bs_afp/usbankingfraudcompany"><img src="http://d.yimg.com/a/p/afp/20100729/capt.photo_1280428054619-1-0.jpg?x=130&y=86&q=85&sig=SKHBaD6xrLbKtc7WTPv_kg--" align="left" height="86" width="130" alt="US bank Citigroup agreed Thursday to pay a 75-million-dollar fine to settle charges it misled investors about exposure to subprime mortgage-related assets, the Securities and Exchange Commission said.(AFP/Getty Images/File/Spencer Platt)" border="0" /></a>AFP - US bank Citigroup agreed Thursday to pay a 75-million-dollar fine to settle charges it misled investors about exposure to subprime mortgage-related assets, the Securities and Exchange Commission said.</p><br clear="all"/>
(AP)
AP - Mortgage rates drop to 4.54 pct., hitting lowest level on record for fifth time in six weeks.Mortgage lenders must register in database
(AP)
AP - Loan officers at banks will be required to provide their names and fingerprints to a national database as part of an effort to crack down on shady operators who fed the real estate bubble.Treasury says latest mortgage-aid report flawed
(AP)
AP - The Obama administration is revising the latest report on its troubled mortgage-relief program, and the changes are likely to show a greater number of borrowers facing foreclosure after having their loans modified.
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specific planning to ensure your assets pass in an orderly and efficient manner to designated individuals. Estate planning includes writing wills, setting up trusts, establishing Powers of Attorney, and planning ahead to avoid unnecessary taxes. ...
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