The IRC 1031 Tax Deferred Exchange, in brief- Part Two
Thursday, March 13th, 2008
how does a 1031 exchange workThe second category takes into account all properties purchased for investment purposes. Therefore, if a land, building, factory, apartment, out house, vacation house, etc. was originally purchased with the sole aim of selling it at a higher price in future, it shall be deemed to be used for investment purposes.
Both the above two categories qualify for tax deferral under IRC 1031. It is needless to say here that the third and the fourth categories do not qualify for tax deferral. The third category includes personal real estates. By personal real estates the IRS means those used for the residential purposes of the owner himself.
The last category includes dealer properties. These are those real estates that are used as inventory by the estate agents. They sell these properties to their clients in the natural course of their business. Dealer properties are also excluded from the purview of this provision. Similarly, any properties or assets, other than real estate, are also excluded.
The other conditions that need to be fulfilled are the hiring of an authorized intermediary, also known as the facilitator. A written agreement is required between you and your facilitator. It is the facilitator that actually makes the exchange happen.
Within 45 days of closing your sale you have to identify your new property, and within 180 days you have to close your purchase. Spend every penny of your sale proceed in your new property to avail the tax deferral. Keep abreast of all information and be in touch with all parties involved.
The IRC 1031 Tax Deferred Exchange system has been devised for your benefit. If used judiciously, your real estate holdings can increase to a great extent.