1031 exchange is a tax code applicable in united states to perform internal services on revenue. It gives clarification on the issues of property investment exchanges where one can exchange one investment property to another one through the 1031 exchange. It also dictates that one can call off capital gains or even losses. It is broad in exercise as it entails all property and not being limited to one type of property. For smooth running, there are various rules and restrictions executed to control the entire process of investment property exchanges. These restrictions include the following. Go to the reference of this site for more information about 1031 exchange www.1031gateway.com.
You should be an owner of a real estate. It should be that you directly own a given property. It should not be like just that you are a shareholder in that business. Shareholders are not qualified to participate in this since direct ownership is the considered factor here.
Personal property is not allowed in 1031 exchange. Only investment properties are considered, and therefore your personal property is disqualified from this clause. You are always allowed only if the property you intend to exchange is not personal to you but is a significant investment to you.
There needs to be like-kind properties being exchanged. To operate in 1031 exchange, the property you intend to sell and the property you want to receive must of the same kind. This further can be explained that the properties in the exchange must be similar in say character though they may vary in their value and quality. Also, you could exchange more than one property for just one property as long as they do not differ with their kind. To read more about the 1031 exchange rules, follow the link.
The property should be of greater value or equal value. Exchanging for cheaper property subjects you tax in 1031 exchange clause. It dictates that the property worth in the market is equally the same or slightly greater but not less than. You do not want end up having to pay a lot of taxes the entire process of sale. Be wise and cautious of the executions so as you can enjoy the benefits of 1031 exchange thoroughly.
In other cases, you are allowed to prolong your exchange in case someone else tries to act as an intermediary between you and the person you intend to sell the property to that is the prospective client. In as much as there are also restrictions concerning delays, like deadlines and such like; if you find out that there could be an intermediary, then you have the freedom to delay exchanging your investment property. Seek more info about 1031 exchange https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031.