Get to Know More About 1031 Exchange Services

Get to Know More About 1031 Exchange Services The real estate business is indeed tricky. Whether it is about purchasing a new property or selling an existing one, you need to follow the right approach to gain maximum benefits. If you are to say, defer taxes on your latest real estate deal, you might consider opting for a 1031 exchange in Utah. While it may seem a simple exchange at first glance, it requires much deliberation and expertise to complete the exchange or the transaction of your property.

Here are some of the things you should know about the 1031 exchange before you choose this plan:

What is the 1031 exchange?

The 1031 exchange is a popular method opted by individuals to defer or limit the amount of taxes due when buying a real estate property. It comes from the Section 1031 code of the Internal Revenue Service (IRS) that states rules about purchasing like-kind properties. In basic terms, this means that you can swap your property in exchange for a like-kind property with no or minimal tax obligations. This happens because you do not get cash in the transaction.

The procedure of 1031 exchange Ideally, the 1031 exchange happens when you find a replacement property that is exactly like your existing property. It should have the same value, structure, and other similarities to qualify for a 1031 plan. It is done between two individuals (with fixed rules and guidelines) who wish to exchange the properties without paying cash. Since it is not always possible to find a property owner who does that, the 1031 exchange is often done with the intervention of third parties or middlemen.

Role of third parties in the exchange Third parties are generally Realtors or professional agencies who help you get a 1031 exchange. This is done by first selling your property to an individual. The cash from the transaction is kept by an intermediary or a third party till you finalize your replacement property. Once it’s done, the amount is paid to the owner of the replacement property and you can complete your exchange with no or limited taxes.

Timelines and rules To conduct a successful 1031 exchange in Utah, you need to familiarize yourself with the timelines and rules of the plan listed below: â—? 45-day rule

The 45-day rule in Section 1031 code of the IRS implies that you need to finalize your replacement property within 45 days of selling your existing property. You can have about 3 or more options ready provided that they fall within the valuation tests. However, you can close on any one of the 3 property options. You need to adhere to these guidelines to be eligible for a 1031 exchange. â—? 180-day rule

In case you fail to close the deal for the replacement property within 45 days, you might go for a delayed exchange that is to be completed within 180 days. This time starts from the day you have sold your existing property. Here, you need to know that the 180 days and the 45 days are concurrent. This means that once 45 days are over, you have 135 days left in total to close on your deal. If you do not do that, you might not get the tax deferrals in the 1031 plan.

Word of Caution The rules, terms, and conditions discussed so far are applicable for the 1031 plan. You need to follow different guidelines when you wish to get a 1031 exchange on a vacation home. Also, if there is a difference in the sale amount of your existing and the replacement property and you get benefits, then that amount would be taxed as ordinary income. Seek professional assistance to clarify your doubts.

To know more about a 1031 Exchange in Salt Lake City, get in touch with the concerned professionals.

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