1031 Exchange Rule an incredibly easy method that works for all
According to IRC Section 1031, the 1031 exchange allows an investor to sell a property, and to reinvest the proceeds of the sale to buy a new property and to defer all capital gain taxes. Under 1031 property list the like-kind property shouldn’t have a variation in its quality and may include: Office Buildings, Industrial Facilities, Storage Facilities, Retail Shopping Centers, Single-Family Rentals, Multi-Family Rentals, and Raw Land.
Properties that are held for investment are not required to produce any cash flow or income through the same. All that is to be achieved by them is should be held for investment to qualify for 1031 exchange. There are other methods through which an individual could acquire and utilize a property or resource in their business or trade and qualify for tax-deferred exchange treatment.
As far as 1031 Property is concerned, below mentioned are the points look into it –
Your relinquished and replacement properties will be suitable for 1031 exchange in the event if they are deemed to be qualified use property.
Above all other points, the most significant one is that your properties or assets must be used for business or held for investment. When you look into the process that what qualifies and what does not qualify, you will discover different opinions on this issue because the codes and regulations are not adequately defined held for investment or use in a business.
Properties Used in Your Trade or Business
Another way in which you can acquire and use your property or asset in your trade or business, and it will pass for tax-deferred exchange treatment. You can purchase a commercial office building to operate your business from or acquire manufacturing equipment manufacture your product.
Properties Held for Sale
Those 1031 Property List or assets acquired and held for sale will not qualify for to be used in a trade or business or possessed for investment and will typically not be suitable for 1031 exchange. The obtaining of property for the sole purpose of setting it up and then selling it, or what is also referred to as flipping property, is a good example of a property being held for sale and not being held for investment. Getting a multi-family property and converting into apartments and then selling individually is an excellent example of property used for sale and not for investment.
In addition to all mentioned previously, a personal property also qualifies for 1031 exchange process if the Qualified Use Property Requirements for the property are met. State law generally tell the determination of whether a property is classified as personal or real property.
Domestic Property versus Foreign Property
Property that is to be sold in one state can be exchanged for property situated in another state, if they are situated within the US. We cannot exchange the domestic property for non-domestic property. Since specific state and/or local exceptions are applied, it is best to consult with the local legal and tax advisor.