Important Things You Should Know About 1031 Exchange
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1031 exchanges are also known as "like-kind" exchanges. This has been considered as an important tax savings tool if you have an investment property with an increased value, but this can actually be a lot more complicated. There have been law firms helping clients with property issues such as these 1031 exchanges for over a decade now. And as expected from them, they've always provided their best to their clients and one of their key goals is to make sure their clients are educated which is why this article is made to explain some of the basics of 1031 exchanges. Read more great facts on 1031 Gateway, click here.
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The thing about 1031 exchange is that you'll be swapping your property for similar properties (which is why it's called "like-kind") which are owned by somebody else. This way, you'll be successfully deferring taxes on any profit that you would otherwise receive upon selling the property and you will now own a new property. By doing this, you'll be postponing the taxation of gain because the swap you just did here will be treated as if the property you gave up is a continuation of ownership. For instance, when you exchange a rental house that comes with an adjusted basis of a quarter million bucks for other investment real estate with just the same adjusted basis. If that's the case, then the fair market value of these two properties will be half a million bucks. No gain will be recognized on the transaction which means that the taxes due will not go up. For more useful reference regarding 1031 Gateway, have a peek here.
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However, keep in mind that 1031 exchanges could only take place between similar property by which the IRS will recognize as like-kind. Properties that are known to be like-kind have similar or the same characteristics even if their grade or quality differ. Every investment or business real estate in the United States is known to be like-kind with all the other real estate in the U.S. despite the location or the type. For example, an office building in New York is like kind to an apartment building in California.
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While there's no recognition of any gain with regards to paying taxes, if you keep on having your property exchanged, you'll probably want to sell later on the replacement property for cash. If this should happen in the near future, the original gain on top of any additional gains starting from the day of the sway will be subject to tax. This is exactly the reason why 1031 exchange is known to be a delayed tax rather than tax-free. Please view this site http://www.ehow.com/how_6398842_use-exchange-purchase-new-home.html for further details.