It is very important that you look closely at all of the 1031 exchange rules. One mistake can mean the difference between paying the full boot in terms of taxes to the IRS, or deferring those taxes so that you can make the most out of your assets and enjoy a greater return on your money over time. Let’s take a quick look at some of the very basic like kind exchange rules.
The best place to begin to make sure that you’re following all the rules correctly is to hire a qualified accountant or 1031 exchange company to help see you through the process. This way they can help you set a plan to make sure that all of the accounting rules are followed to the letter. Also in completing this transaction you will need to make sure that the funds from the sale of your current investment property is kept in escrow away from your personal assets. The company you work with should be able to set up this escrow for you, and by keeping your funds separate you will be able to meet the IRS requirements for your 1031 exchange.
The biggest rules that you need to follow are the 45/180 day rules. It is essential that you meet all of the time frames required for the tax-deferred exchange. In the simplest form what you need to do is identify a new investment property within 45 days of the close of your previous commercial property. It doesn’t have to be the actual real estate that you intend to purchase or that you end up purchasing, but you do need to identify a potential property to meet the IRS rules. And finally the new real estate purchase must be completed within 180 days of your sale of your previous property. And while six months sounds like a lot of time, it can sneak up on you very quickly, so make sure that you are researching your new property opportunities as early as possible.
The following all of the 1031 exchange rules doesn’t have to be difficult as long as you make a plan, work with competent advisors, and execute the exchange and a timely manner.
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