Understanding A 1031 Exchange – Most often referred to as 1031 Exchange for the IRS section it refers to a tax-deferred exchange which allows you to sell your real estate investment property and buy new property with the profit from the sale and not have to pay taxes immediately. By using this strategy you will find that you have instantly diversified your investment portfolio and maximized your wealth.

A Profitable Real Estate Decision
The intent for the property must not be for resale but to keep the replacement property as an investment or for productive use in trade or business. The 1031 Exchange’s set-up includes simultaneous, delayed, build-to-suit, reverse and reverse build-to-sit. A great way to optimize your 1031 Exchange is to purchase a rental property just below market value, rent it for a year, sell it, and then buy two rental properties with the return. However it is important that the property you are going to purchase must be ‘identified’ and closed with a given time window. In order to ‘identify’ a property, you must deliver a signed document to the person assisting you (unrelated) on or before 45 days from the date you sold the original rental property (including weekends and holidays).

Rules of 1031 Exchange
You can identify more than one property as a replacement property as long as the total value does not exceed 200% of the original property’s value. You must also buy replacement property of the same or greater value as the relinquished property. There are several conditions related to the reinvestment.

First, it is important that you reinvest all the exchange equity into the replacement property. Next, you must obtain the same or greater debt on the replacement property as the relinquished property. You don’t have to close on all the properties you identify but at the end of the identification period if you have identified more properties than allowed, it will be as if you identified no properties at all. You will one taxes on all original sales. After the 45 days have passed, you may not change your property identification list and must instead purchase one of the listed replacement properties or the Exchange fails.

Professional Guidance is Imperative!
After having been introduced to the 1031 Exchange you can clearly see that it is a very complex structure with very sensitive terms. It is a must to be in contact and receive close guidance from a knowledgeable and seasoned real estate professional who will be better able to help you with the process of the 1031. A Realtor like Greg Harrelson will ensure to maximize your return and assist you with the complexity of the system.

*** please be advised that the above-listed information is subject to change by the Internal Revenue Service and therefore it is important whenever making large investment decisions to work with knowledgeable professionals including accountant, attorney, or other specialists.