Understanding the 1031 like kind exchange program
- Published on Monday, 21 November 2016 15:21
- Eliot Chapman
You have probably heard at least once about the 1031 exchange program but you did not give it such great importance at that moment until now. First of all, it is worth mentioning the fact that there are several forms of 1031 and one very popular is the real estate like kind exchange
, which comes with a series of great benefits. Here is more useful information about this form of exchange program in case you are interested in learning more about it.
What exactly is like kind exchange?
For those who are not quite familiar with this term, it is important to note the fact that like kind implies for a property to be exchanged with another one that is similar in character and for the former one to be held for productive uses in specific trade or business or even for various other investment purposes. One very good example in this case, in order to make things clearer and to understand better what exactly like kind exchange implies, is the replacement property of a building used as office center for instance with a shopping center, a farm for a commercial space or even a hotel for some raw land. The exchange is possible without generating any tax liability from the sale of the first property.
What are the requirements?
In order to qualify for 1031 like kind exchange, you should know that both properties, the one you own and the one you exchange your property with, must be held, as was already mentioned, for investment or for use in trade or business, since if it is primarily used in personal purposes it cannot qualify. Although properties may differ in quality or grade, they have to be of the same nature or character. In order to ensure that your property qualifies for this program it is best to resort to some professional services of a specialist who has vast experience in the 1031 exchange domain and who knows all the rules that need to be followed in this process, because this way you can be sure you will benefit from the best results only.
What are the benefits of 1031 exchange?
You may wonder what exactly the benefits of resorting to 1031 exchange are. Well, one of them is that it allows you to defer capital gain taxes on the sale, which for you, as an investor, should be great news. You can use the cash as equity when it comes to the new property for instance and you do not have to worry about paying any more taxes. Furthermore, there is also an increase cash flow, since numerous investors that hold non-income production properties are looking forward to exchange them for income producing commercial or residential properties. However, these are only two very good examples of benefits that come with resorting to the 1031 exchange program.
Overall, these are some of the most important details you need to know about the like kind exchange and that can help you make a clearer idea upon this aspect.