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If you're a real estate investor who's looking for ways to cut on costs, maybe you've heard about section 1031 of the tax code that allows you to defer payment on capital gains tax. This technique is popularly known as the 1031 Tax Deferred Exchange. It pays to know everything involving this tax code section to benefit from it fully. The Internal Revenue Code Section 1031 grants a right to all investors to defer payment of capital gains tax after several provisions have been met. The most important provision under this section is that all gains must go the purchase of "the same" property. You can't avail for 10310 exchange if you sold a house and purchase a car. You are not also allowed to hold on to those capital gains for as long as you want. You have exactly 120 days from the day you sold your property to find a new property and put it under contract for acquisition. You must also purchase that property under contract within the time allowed for you to avail the benefit of 1031 exchange. There's no extension allowed for these days and you cannot use the money to purchase a property for your own personal use. You need a lawyer or the service of a 1031 service company to set up everything for you. They will serve as the intermediary or the facilitator for the whole process. Your intermediary will take the property gain from you, buy the exchange property for you, and transfer the ownership to you as soon is it has been paid. This arrangement is provided by the IRS and must be followed at all times. Your papers must also state clearly that you want the sale and the purchase of the exchange property to cover the privilege under section 1031 of the tax law. Your intermediaries are tasks to ensure that your contracts clearly state your intention. This is part of their job, which by the way you are going to pay them for. The five kinds 1031 exchanges include simultaneous, delayed, build-to-suit, reverse, and personal property. The kind of 1031 exchange discussed above is the delayed kind, which is the most popular in real estate. This kind of 1031 exchange involves an allowed delay of time from the sale of the property to the purchase of the exchange property. The obvious benefit of 1031 exchange is that you can postpone the payment of the capital gains taxes until you do the final sale. You still have to pay the tax sometime in the future when you want to finally let go of the property for good or you can't find an exchange property in time. But in the meantime, wouldn't it be great to skip taxes when all you want is to exchange your property for a more profitable one? Lastly, smaller investors and those that are only starting in the business often think that 1031 tax deferred exchange is only available to established real estate investors. But you could not have been more wrong. This opportunity is open for all investors to avail as what the IRS code suggests.
Article Source: http://www.realestateinvestmentarticles.net
Author Jacques Coquerel is a real estate investor in Atlanta, Georgia. He has made more than 750 real estate transactions since 1996. For Real Estate Investing Tips get his free course Real Estate Investing Free Course.
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