More and more people are finding it tougher to keep a hold of their money these days. It is troubling to see that some people lose some of their money needlessly as well by not understanding some of the tax laws that can shelter some of their money from being unduly taxed.
In particular there is one way that people often misinterpret. When selling a property and then reinvesting it, it can be sheltered from taxes as long as it is done properly. If you try to shelter some money that does not qualify it could come back to hurt you.
The definition of a 1031 tax exchange is to reinvest the proceeds from one sale into another property that is like kind or that will be used for business purposes. One example of this would be that you reinvest money from the sale of one rental property into another rental property.
There are also some other requirement s that the transaction from one property to the other be completed in a certain time frame. For example, the replacement property must be identified within 45 days of the sale of the relinquished property. Also, the sale must be completed within 180 days.
In order to do a 1031 exchange and have it qualify you must use a 3rd party who has been qualified to process a 1031. They are primarily used to hold the proceeds from the sale until you reinvest it into the new property. The government has made this rule to protect against from 1031 fraud.
However, it is possible for a person to have a gain and still complete a 1031 exchange. It is not advised most of the time, but it can be done. The gain in this case is often referred to as a boot. The boot must be reported and taxes paid on it.
A boot, to more clearly define it, can come in many different ways. For example, it can come when the cost of the new investment is less than the sale of the old property. The extra cash then taken out is called a boot.
One of the more difficult pieces of a 1031 exchange is finding the replacement property within the first 45 days following the sale of the other property. The IRS is strict on this one and will not file extensions on this, so it is a good idea to have a head start on that one before beginning the process.
Author Resource:
If you have never heard of a 1031 exchange or 1031 exchange property , but you buy and sell property, then you had better learn a little more so that you can save a lot of money on unnecessary taxes.
![[Valid RSS feed]](http://www.look4articles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
![[Valid RSS feed]](http://www.look4articles.com/images/rss.jpg "XML Feed For RSS")