Timmybones

An important fact in regard to conducting a 1031 exchange is that you cannot use the proceeds of the original sale to fund improvements on property you already own. This is a common stumbling block of unwary investors. To qualify for a capital gains tax deferral, the replacement property has to be of like kind with the relinquished property. For this reason, the replacement property must constitute real estate valued at or above the value of the property sold. An improvement that is incomplete is thought of as a contract for a service, which represents personal estate but not real estate. Due to the regulation that a property acquired in a 1031 tax deferred exchange has to be of like kind and equivalent value with the relinquished property at the time of closing, it is, at times, hard to locate one that fulfills these legal requirements but also fulfills his or her specifications.

So, next time you find that you are planning to sell a piece of real estate or other type of property, take a moment to consider the future profit you could gain were you to make an exchange. If you decide a 1031 tax exchange rather than selling your property outright, you can maximize your wealth and come out ahead in the end.

A key truth regarding conducting a 1031 exchange is that you may not make use of the proceeds of the original sale to construct land you already own. This is a common stumbling block for unwary real estate investors. In order to qualify for tax deferment, the replacement property must be of like kind with the property it is replacing. In this case, the property you purchase has to be real estate with a value at least as high, if not greater than that of the relinquished property. An improvement that is not finished is thought of as a contract for a service, which constitutes personal property but not real property. Because a property purchased as a replacement in a 1031 exchange must be equivalent in type and value with the property sold upon closing, it can be difficult to locate a property that fulfills these legal requirements and fulfills his or her specifications.

So, next time you find yourself in the position to sell an appreciated piece of real estate or other type of investment, take a moment to consider the dividends you could reap were you to exchange instead. If you choose a 1031 exchange instead of selling your property up front, you can maximize your wealth and come out ahead in the end.