For Sale by Owner News and Articles
Understanding the 1031 Exchange
- Both your "Old" property and your "New" property have to be investment property. Rental property, bare land or vacation homes are examples of investment property. If you meet this test, you can sell any type of property (say an apartment building) and buy any other type of property (say an office building).
- From the date of closing on the sale of your old property, you have 45 days to come up with a list of properties you would like to buy. This is called your "45 day list" and we recommend that this list contain 2 or 3 potential properties.
- Also, from the date of closing, you have 180 days to close the purchase of whatever you are buying. And what you buy must be included on your 45-day list.
- You can not touch the money. By law, the money must be held by a "Qualified Intermediary" (sometimes also called an "Accommodator" or a "Facilitator") who is also responsible for the preparation of paper work required by the IRS to document the exchange.
- Title has to stay the same. Whoever held title to the old property has to end up as the titleholder of the new property.
- You have to reinvest all of your cash, and your new property has to be at least equal to the net sales price of the old property. If not, you pay tax on the difference.
Follow these simple rules and you can enjoy one of the last loopholes in the tax code.
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