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Want To Know More About 1031 Tax Deferred Exchange?

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.

Finally you there's a law-mandated benefit that says it's legal for investors to delay the payment of capital gains tax if the requirements have been followed. This is under section 1031 of the U.S. Internal Revenue Code. The number one requirement you should meet is that you should spend all the capital gains to purchase the same property.

Another condition you need to accomplish is that you must find a suitable property to exchange for the one sold within a specified amount of time, which is 120 days from the date your property is sold. After you have identified, meaning put the possible exchange property under contract, the acquisition must also be made within a specified amount of time from the date of identification - extension is not allowed. You should also know that the exchange property could not be a house you want to buy for self-use.

A lawyer or an intermediary such as a 1031 service company is also needed to facilitate the process. Hiring the service of these people is also another condition to qualify for 1031 exchange. These people will facilitate the papers and the contracts involved in the process. For instance, the intermediary is tasked to handle the capital gain for your, purchase the exchange property, and transfer the ownership to you.

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?

But sometimes new real estate investors thought that only big investing companies can avail for this privilege when the truth is that all real estate investors - big or small - are eligible for this privilege. This privilege is mandated by law and is enforce by the IRS through section 1031 of the tax code.

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Author Jack Cockrel is a real estate investor in Atlanta, GA. 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. This article is available as a unique content article with free reprint rights.

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