You work hard to provide for your family, and you want to make sure that your business is successful. This is why you study the market, and if you find an opportunity, you know that you have to take it. So in case you consider that changing the business property would help you earn more money, and it would be effective for your business, then you should research on what options you have, to do it. But if you will sell your property, you will not be able to reinvest the entire sum you get, because you will have to pay taxes. So, what can you do in this situation? You should check the options offered by 1031 exchange, because you will be able to swap your property for another without having to pay any tax. If you choose one of the like kind exchanges, you will be able to postpone paying the tax, and you will reinvest your gain into a similar property.
What are the limits for completing the 1031 exchange?
It is important to know from the beginning that you do not have to swap the properties simultaneously. You will have to meet two times limits if you want to make sure that the gain will not be taxable. You cannot extend these limits, no matter the circumstances. The only exception would be in case of presidentially declared disasters. Therefore, you have to know that you have a first limit of 45 days during which you will have to identify a potential replacement property. You should get the identification in writing; you will have to sign the papers and to deliver them to the intermediary. You have to clearly describe the replacement property into your written identification, so you will have to offer the street address, legal description and distinguishable name. The second limit is that you will have to complete the exchange in 180 days after the day you sell yours.
What restrictions are implied by reverse and deferred exchanges?
The main restriction you have to take into consideration is that you must not take control of proceeds or cash before the process of the exchange is completed. In case you do it, the transaction will be disqualified and you will have to pay taxes for the sum or money you sell your property for. In case you will receive the proceeds or cash after the exchange is completed, the transaction will be qualified as a like-kind exchange and the gain may be taxable, but only for the extent of the sum that is not like-kind property. If you want to avoid this situation, then you should get the cash through an intermediary or facilitator. You are not allowed to act as your own solicitor. In addition, your agent, being them broker, real estate agent or attorney, cannot act as your facilitator. When you select the intermediary, you have to check their background to make sure that they have not been implied in recent incidents as bankruptcy. These are only some of the limits and restrictions implied by the 1031 exchange, so you should check online for detailed information.