Is 1031 exchange useful when having a real estate investment?
- Published on Friday, 02 September 2016 11:33
- Eliot Chapman
Many business property owners consider at a certain point that they do not want to use the building they manage at the present, and they want to purchase a new one, for obtaining a greater profit. But, if you intend to do this, you should know that you would have to pay a tax for the money you receive for the transaction, and you might end up seeing that you do not have the needed funds to purchase the new property. Well, if this is the situation, you should know that you have the possibility to avoid paying this tax by using the 1031 exchange. In case you do not know what is a dst
, you should know that is a tax deferred exchange you have the possibility to use if you want to benefit from different tax advantages. The owners of commercial properties can use this strategy, and you simply have to relinquish the property you have and acquire a replacement one.
Why should I use a 1031 exchange?
The main reason why you should consider using this strategy is that you have the possibility to defer taxes on the money you have earned as the result of the transaction of you old property. In this way, you can use the funds you obtain, to invest in an equal or greater property, which would offer you more financial benefits. You have the possibility to exchange your property for one or two new ones, according to your preferences and needs. In addition, you have the possibility to choose a new real estate investment that would not require so higher costs of maintenance and management as the new one. It is advisable to collaborate with an experienced person in this process, because you might have to deal with multiple rules, procedures and regulations, and you might not have the required knowledge for doing so.
What specific regulations should I meet?
There are some guidelines that state that you have to meet some rules if you want to be qualified for the exchange. One of the rules states that you have to invest in a property that is listed at the same price or at a greater one of the sum, you have received for the transaction you have made with the old one. Also, you have to acquire a property which is located in the United States, but it does not matter the region, so this offer you great advantages, because you can buy a property in an area where you would have many financial advantages in the future. In addition, you should know that the property you purchase has to be also a commercial one, and not be used for personal purposes. A specialist would also inform you that you have to find a new property and close the deal within 180 days. However, you have to keep in mind that you have only 45 days from the 180 to find the property, because the left ones should be used to close the deal.