If you are selling an investment
property and planning on
re-investing then the 1031
exchange is right up your alley.
A 1031 exchange is basically a
tax shelter allowed by the IRS
where you sell an investment
property and then re-invest the
profit from that sale into
another property. Now, keep in
mind that you must re-invest the
entire amount from the sale. This
is not to say it has to be in one
property, as long as you
re-invest the full amount it does
not matter if it is spread
amongst several properties. In
doing the exchange, an
intermediary or third party,
usually a company or financier
will hold the funds from the sale
until a"like-property" is found
whereupon the funds will be
released to complete the sale.
From the time
that you sell your investment
property you then have 45 days to
identify the property or
properties that you intend to
purchase with the proceeds. There
are also a few safeguards built
into the process to ensure that
it is not abused. One of these is
called the 95% Exception rule.
This rule states that you must
acquire 95% of the property that
you declare an intent to purchase
or "identify." Another guideline
is the fact that once your sale
property closes, you have six
months from that date to close on
your identified properties.
kind of property qualifies for a
1031 exchange except for your
primary residence. This makes the
1031 exchange a great opportunity
for beginning investors to make
their mark on the investment
market. For complete information
on 1031 exchanges it's a good
idea to check the IRS web page
which features complete and
comprehensive information on
everything that is involved with
this type of financial
transaction. There is also a
healthy selection of companies
that operate as the financial
intermediary that can provide
accurate info for the investor.
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