1031 Tax Exchanges and Property Laws

A sound knowledge of 1031 exchange rules is extremely useful and important to real estate investing entrepreneurs. If the rules are studied and implemented in the right way it will save you lots of money in taxes! By simply doing some research you will increase profit and avoid problems associated with 1031 tax exchanges.

Dead line are by far the most important thing to know about 1031 tax exchange rules. It is crucial to purchase a new property within the given 180 days after you have sold your property. Further more, there is a 45 day period in which you must identify one of the properties you are attempting to exchange!

Your goal is to limit the total amount of deferred taxes. This can be accomplished by moving the entire amount into a new property investment. According to the tax code, "1031 tax exchange rules", it is not possible to take money generated from a sale, and use it for alternate, unrelated expenses. Therefore, you need to be particularly specific with your documentation. Keep a specific set of books dealing with the exchange, and write separate well documented checks for each part of the transaction.

If you happen to reside in a different state from where the property is, be aware that some states mandate that your closing agent or real estate agent is legally obliged to hold back a percentage of your sale price in order to ensure that the state gets any tax revenues that it is due, given that hunting down such non-residents at a later date becomes increasingly difficult.

The real property tax act of 1980 requires that foreigners withhold ten percent of the sales price for this reason. Some states will waive this requirement that it why it is very important to know your state's stand on this issue. You must use a qualified intermediary who completes all the necessary paperwork and filing and must adhere to the 1031 tax exchange rules. There are many places on the internet where you can find 1031 exchange information and you can even find qualified intermediaries in your state.

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