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Some Things to be Aware of the 1031 Exchanges Some of the investors out there have been wise to the tax benefits of the 1031 exchanges for many years. There are also people who are only new to the game and they actually wonder what all the fuss is about. They would hear realtors, investors, attorneys and others mention such but they are certainly not very clear on what the process actually includes. Well, to simply put it, the 1031 exchange would let an investor swap a business or investment asset for another one. Under such normal circumstances, the sale of such assets would actually incur tax liability on any capital gains. But, when you are able to meet the requirements that you can find in the section 1031 of such IRS tax code, you can then defer the capital gains tax. But, it is really important to note that the 1031 exchange is not a tax avoidance scheme. If you are going to sell the business or the investment asset and you don’t replace this with another property, then such capital gains taxes will be due. There are so many nuances to the 1031 exchange and this is the reason why it is really wise to seek some help from such professional experienced with the transactions. Before you try the 1031 exchange yourself, you must know a few things and get to understand the basics.
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Keep in mind that such is not for personal use. Even if you are tempted to consider trading up your primary residence and avoiding the capital gains liability, the 1031 is only available for such property held for business or investment use.
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There are also some exceptions to the personal use prohibition. Just similar to most things in the IRS code, you should keep in mind that there are exceptions to the rule. Personal residences will not qualify, you may also exchange the personal property such as a piece of artwork or the tenancy-in-common. You have to remember too that the exchanged property must be like-kind. This is actually an area that would sometimes confuse the new investors. The term like-kind won’t mean the same but such means that the exchanged property should be the same in scope as well as use. IRS rules can be liberal but there are various pitfalls for those who aren’t very careful. Remember that such exchanges don’t take place simultaneously. One of the important benefits is that you may sell the present property and have up to 6 months to close the acquisition of the like-kind replacement property. Such is termed as delayed exchange. You must get the help of such qualified intermediary when you like to complete the exchange.