When to Turn to the 1031 Exchange Tool
Real estate is known for never letting down those who invest in it. Just as you would find in any other investment, there will be risks and uncertainties. There will be several taxes involved, such as capital gains tax and other tax rules. If you are not careful, you could lose a significant amount to these taxes. You can turn to the 1031 exchange. When you use it as intended, it gets to save you so much from payments of taxes. Here is more about how you can use this option to your advantage.
For the most part, real estate investments tend to give you more money than you spent while purchasing them. That profit that comes from such a sale is what is commonly referred to as capital gains. The tax authorities are always ready to receive taxes from those proceeds, whatever asset you had to part with. What you have to pay relies on the duration of your ownership of the asset, and your income tax bracket. The longer the ownership, the less you end up paying in capital gains taxes, as that is looked at as a long term investment. There is an allowance created by the tax authorities that allows you to defer capital gains taxes from the sale, as long as you use what you made from the sale on another property.
The 1031 exchange makes profits for you if you meet certain requirements, and complete transactions in a given timeframe.
The property in which you put the proceeds from the initial sale must be like-kind. You are free to use any kind of property, as there are no clear definitions. The only expectation is that it be of the same or higher value. You also must use business or investment-specific properties.
The timeline dictates that once you sell the property, you have 45 calendar days to find a replacement property. At the same time, you have 180 calendar days from that initial sale to close on the sale of the next property. It is important you file for a tax extension if you do not see yourself meeting the set deadlines. You also, need to make sure you owe no other taxes on the property. Failure to do so attracts penalties and interest.
When you look at the tricky nature of the facility, you will appreciate letting experts do it for you. They will hold onto the money from the sale and take care of the paperwork. The moment you possess any money from the sale, you need to pay taxes on it.
If you were to leave the real estate business, you do not have to worry about the eventual capital gains tax bill. You can check out this site for more info on how, and these reasons why it is a good idea.