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The correct way to Use 1031 Exchange

The correct way to Use 1031 Exchange

A 1031 or tax def erred exchange permits a property owner to sell one property and then go straight intopurchasing another one in a specif ic period of t ime period. The name comes f rom the incontrovertible f actthat the exchange is an exchange and not just a easy sale. In this process, the tax payer is qualif ied f or adef erred gain, as property sales are taxed by the IRS but 1031 exchanges are not.

A 1031 exchange is recognized by the IRS as a way to def er capital gains taxes, so it 's essential youunderstand what is involved, What the guidelines are and what the essential intent is bef ore it 's possible tothink about perf orming one. On selling the property, the IRS will tax you on the portion which has depreciatedas tax. Any property owners who will get a replacement "like kind" piece of property should think about a1031 exchange bef ore the existing property has been sold.

The 2nd rule is that all the equity that was acquired because of the sale of the property that wasrelinquished needs to be used in acquiring the new "like kind" property. If the value of the purchased propertydecreases, tax will apply to the dif f erence. Also, if all of the equity is not transf erred the "like kind" propertytaxation rules will also apply. Partial exchanges can also be perf ormed, and these are sometimes also f it f ora partial def erral of tax.

Now here's the perf ect cash f lowing property great f or 1031 exchange.