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Most individuals are confused and don't comprehend a 1031 exchange. For investors in real estate and other property, this is a familiar term to them since they are used in taking advantage of all the strategies accessible at reducing the cost of investment and increasing their gains. For those who are not familiar with the term, the phrase is derived from section 1031 of the Internal Revenue Code that state the requirements and procedures to be taken when one wishes to qualify for a 1031 exchange. It is the tax code that has allowed the transaction to be conducted in real estate transactions. The main advantage of the exchange lies in the deferred tax advantage the investors engaging in this deal receive.

 

A deferred tax means that the fee you have incurred is not payable to the IRS immediately instead has been postponed to be paid at a future date allowing the investor to enjoy the full proceeds of the capital gains received from the sale deal they have realised. The IRS imposes strict conditions for anyone that wants to qualify for the deferred tax available in a 1031 exchange transaction with website that is clearly stipulated in section 1031 of the Revenue Code.

 

When engaging in a 1031 exchange, you typically go through the normal transaction process in any other deal, but the most significant difference is that the 1031 exchange is itself an exchange. The dynamics involved are what give the buyer an opportunity to get a preferential treatment and get a deferred tax treatment. That is the only major difference with the ordinary sale procedures where you would typically need to pay capital gains tax on any proceeds that you receive from selling any property. The only requirement to qualify for the beneficial treatment of a 1031 exchange is just adhering to the laid down rules of section 1031 of the Internal Revenue Code. Discover more about equity at http://money.cnn.com/video/investing/2016/07/29/equity-film-investor.cnnmoney/index.html.

 

 

When considering to enter into a 1031 exchange, you must first analyse some two factors. You must, first of all, investigate the entire cost of the investment property that you are about to acquire and know whether it is higher or lower than the total proceeds that you are going to receive from the property that you are going to sell. Also, don't forget that all the proceeds that you receive from selling the first property must all be utilised to purchase the next property. Ensure that the rules mentioned above are all met so that you can qualify for a 1031 exchange and not subject yourself to tax problems.  Ensure that you perform thorough analysis before committing yourself to a 1031 exchange. You may click here to learn more.