1031 properties exchange
1031 properties exchange is tax-deferred exchange whereby the owner of the property exchanges one or more relinquished properties for one or more replacement properties of the same kind. Through this exchange the property owner can defer payment of federal income taxes and some state taxes. 1031 properties exchange is also known as starker exchange. According to Section 1031, when there is a hundred percent reinvestment of the equity into "like-kind" property which is of equal or greater value, it qualifies for a tax deferral. The investor has to identify up to three potential "replacement" investment properties within a period of forty five days starting from the day on which the relinquished property was sold. The acquisition of the replacement investment property must be successfully completed within hundred and eighty days of the sale of the relinquished property.There are several requirements for a 1031 properties exchange. The equity in the new property must be equal to or greater than the equity in the old property. This means that the loan amount on the new property must be equal to or greater than the loan amount on the sold property. The purchase price of the replacement property must be equal to or greater than the net sales price of the relinquished property.The property owner must use the services of a qualified intermediary who acts as the middle-man in the 1031 exchange and provides necessary documentation expertise and escrow services so that the exchange transaction can be considered legally as a 1031 exchange carried out under Section 1031 of the IRS Code. The qualified intermediary will hold funds from the first sale until purchase of the new property is closed.In the 1031 properties exchange transaction, both the properties must be of the same kind. This means that a particular class of property may not, under Section 1031 being exchanged for property of a different kind or class. It is important to understand the mechanics of a1031 properties exchange before going in for the transaction so that you can achieve you investment objectives in a through manner and in a way that is satisfactory to the law.
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