How To Make Fast and Easy Money on the 1031 Exchange
The 1031 mechanism is one of the most powerful mechanisms in real estate. It gives you the chance to make money without having to pay any tax and you can also keep all of the proceeds regarding your sale as well. So what is the 1031 exchange?
The Exchange
1031 exchange is a strategy that involves selling a property and reinvesting the money that you gain from it. If you want to qualify for this then there are a couple of rules that you need to abide by as it isn’t a normal sale. Some of the reasons why you might want to go through the 1031 exchange are because it gives you the chance to defer the payment of taxes and it also opens you up to make more investments. You can upgrade your 1031 properties and it helps you to relocate to a brand-new area as well.
Properties that you can do this with include residential properties, commercial properties and even industrial properties.
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The Rules
The property that you buy needs to be real and you must also use it for investment purposes. The sale must also go through an intermediary that is more than qualified and only the amount of the sales that are going to be invested again will be tax-free. The replacement property must also be an equal level of debt or greater than the property you have sold.
Time Limits
When you embark on your adventure with the 1031 property trade, you’ll quickly find that there are various time limits that you need to abide by. You need to identify the next property within 45 days of making the sale and this is very strict. You also have 180 days to make the exchange. When you do have the 1031 property identified then it is in your best interest to make sure that it complies with the exchange rules. The sales contract will be given to you and you can then negotiate on this to make sure that you are doing everything you can to meet the appropriate rules.
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All in all, 1031 property exchanges are the best way for you to make the money you need fast, but it’s important to know that this must then be invested in another property. By doing this, you can easily climb up the property ladder without having to worry about paying tax on the property.
So as you can see, properties can easily be exchanged on the market and you would be surprised at how easy it is for you to take advantage of everything that this way of trading/buying and selling has to offer. The property that you choose however must be in the same category as the one that you have now. For example, you could swap a home for another home or a business office for another business office, but you wouldn’t be able to sell a ranch in exchange for a family home and do it under the 1031 property guidance rules. so this is a really important concept to understand.
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