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Important Details About 1031 Exchanges You Need to Know Every U.S citizen is subject to many tax laws, and section 1031 is one of the most popular provisions among investors. This tax law is mentioned widely by realtors, investors and title companies like it is very important. Truth be told, the 1031 exchange is very important in promoting investments within the country. This is because this law allows business people to swap a business asset or investment for another asset. The the benefit of this law is that you can swap the asset without having to pay immediate tax since capital gains are not recognized. Doing this allows your investment to grow, but you have to remember that there are special rules that apply. Before you think of making an exchange, here are a few rules of engagement that you should follow through. While 1031 allows swapping of investment and business property, the law does not apply to personal use. Individuals cannot use the 1031 exchange to exchange their homes with other people. That said, it is possible to exchange personal property as long as certain conditions are met. With the services of a tax expert, you will be able to make a quick legal swap. The general rule when making any exchange is that the assets must be of a like-kind. The term like kind is enigmatic in the sense that a building and raw land could be considered like-kind as long as they meet the criteria set out in the law. There is also a possibility of doing a delayed 1031 exchange. In this type of exchange, a sale of the property is made, but another party holds the cash for the owner. The money received after selling the initial property is used to buy another property. The the transaction is as good as a swap. When doing a delayed exchange, it is important to follow the rules set out in section 1031. This means that under no circumstances should you hold the cash received after the sale of your asset lest you spoil the 1031 treatment. You are also required to choose a property that you wish to acquire. One can designate more than one property provided that they are all within the confines of the law.
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It is also important to know that all 1031 exchanges must be done within six months. It is, therefore, advisable that you make a swap when you have everything in order. If money is left after you acquire your replacement property in delayed exchange, such money is taxed as it is considered a gain. Also remember to account for mortgages and loans on the property. In the exchange of a property, if the property acquired has lesser obligations, the reduction in obligations is recognised as a gain which is subjected to some tax.Finding Parallels Between Finances and Life