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Property investors often mistakenly sell their investment property or business and wind up needing to pay Uncle Sam thousands of dollars in capital gains taxes. They may not be aware of the tax laws in effect that provide them with the opportunity to retain their capital gains taxes on the sale of their business or investment property.
This law defers and can even eradicate taxes you would normally have to pay if you were selling your property. However, the money you make from selling your property must be used exclusively to purchase a like-kind property that you also intend to use for business or investment purposes.
When you take advantage of the 1031 exchange laws, you can save a lot of money, thereby allowing you to leverage your equity by purchasing even more property (which may have not been possible without the added tax savings).
The 1031 Exchange law has benefited many, and I assure you that you can reap many rewards from it yourself. In order to reap those rewards, there are some specific procedures you need to follow.
First, it?s important for you to choose a well respected and professional qualified intermediary also known as a “Q.I.”. Dealing exclusively with doing 1031 exchanges, a Qualified Intermediary is an expert with the facilitation of such a deal.
Your Q.I. provides a written agreement to change the transfer from and outright sale to an “Exchange” then transfers your relinquished property (that you are selling) and takes that money and uses it to purchase your replacement property on your behalf.
You must abide by the following 1031 rules to qualify for an exchange:
1. Firstly, the investment property that you are replacing must have been used for investment purposes or use in a trade or business and must be “like-kind” (i.e. real estate in the United States for real estate in the U.S.).
2. Secondarily, you will need to locate a property to replace your property if you have not yet done so, and make sure it is identified clearly in writing within 45 days to your Qualified Intermediary. It is necessary to close on the sale on the replacement property within one 180 days.
3. In order to defer all of the taxes, all your money made in that sale must be used to purchase the new replacement property.
Follow these 1031 rules and you will be in the best position to faciliate your exchange. The steps are very simple and even if the road along the way gets a little complicated, in the end it will put a big smile on your face. Do something good for yourself by retaining your capital gains with a 1031 Tax Exchange!
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