If you are not familiarized with the 1031 exchange method here is a short definition for it: this method represents a modality for any investor to avoid paying extra taxes and fees for their property as long as they are able to exchange it for another like-kind one, being in the same price range. Swapping properties can be fully explained if you decide to read a 1031 exchange for dummies, where you can find all the definitions, rules and details you want to know. Here is a summary of the most essential guidelines you should follow if you take 1031 exchange into account:

Affinity and comparison

For a 1031 exchange you need to make sure you have the same kind of property with your associate, this meaning the belongings should be from a similar range. Compare the assets you desire to exchange because otherwise the process will get a bit more complicated, implying that you will have to pay more taxes considering the two buildings are not worthy of comparison. This means you won’t get the benefits you are expecting, so get the hang of your property and inform yourself about the exchange’s conditions. One thing to mention is that you can change multiple properties for a single one if the criterion is right. Consult a specialist for the best results and no issues through the process.

Financial issues and value

 

There is an important detail you cannot miss: the type of your property must not be personal. The only type of estate you can exchange is the investment or business type, so keep in mind you can’t change your actual residence for another. The main idea is you need to understand the main types of real estate property and their value: there are vacant lands, residential properties and commercial properties. You should consider an extensive business valuation service so you can manage better the exchange you are willing to make. Is your property appropriate for the exchange? Are all the taxes and fees in conformity with 1031 service? Try answering all the questions you may have and solving any commercial or funding problems that may occur.

Price differences and taxes

Another concept you should take care of is the boot tax. This means that if there is a substantial pricing difference between your property and the one you’re swapping with, there will be a discrepancy that needs to be covered in the form of a tax, called the boot tax. That’s why is paramount to double-check the implications of the exchange and assure everything is right with both properties engaged.

 

To sum it up and make it easy for you to assimilate all the information above, if switching your properties is one of your future targets, bear in mind you’ll need to identify the exact characteristics of them. Follow the rules and assimilate all the information you can and the swapping should be just fine, this being an opportunity you can really fructify into something amazing.

Rules to follow when considering the 1031 exchange

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