| Section 1031 in the Internal Revenue
Service is a boon for a prospective investor, selling an
investment property and wanting to make a profit by
reinvesting in a similar property elsewhere in the country.
This wonderful concept works on the principle of gain
rolling from the old to the new. There is widespread
ignorance on the modalities about this exchange; as a
result, 30-40 percent of property owners end paying tax
during the sale.
Exchange 1031 not only fructifies into
essential tax savings, but also makes possible the swapping
of property in the fairest manner at places of choice. No
wonder that the 1031 Exchange excites the property market so
much.
The new income-generating replacement property gives the
investor the double gain of added income and savings from
tax that would have otherwise gone to the IRS coffers.
Besides saving the buyer from a huge tax burden coming in
the guise of capital gains, the instrument offers maximum
immunity and flexibility in reinvesting the money gained
from the sale in a replacement property within a given
period.
The exchange being time-bound is no kid’s play either. In
every exchange of this kind, Qualified Intermediaries (QI)
plays a crucial role connecting the buyer and seller. The
Federal Tax Code makes service of QI mandatory since 1991 in
any exchange.
The federal nature of the 1031 Exchange regulations make
the Qualified Intermediary play a wizard in guiding and
structuring the exchange, satisfying all parameters and
suiting the goals of the clients. It is the QI who does the
paperwork required by the IRS to document the exchange. The
QI carefully prepares all documents and serves the parties
with copies of the exchange agreement, novation agreement
and escrow instructions.
The Exchange Agreement reads like a contract between the
Exchanger and a Qualified Intermediary. The Exchanger
explicitly agrees to transfer his old property to the
Intermediary, in lieu of a new property to be supplied by
the latter within 180 days. The contract outlines all terms
and conditions under which the exchange of properties should
take place.
For a 1031 Exchange to take effect, both the old property
as well as the new property should be in the category of
investment property, capable of generating income. The
examples could be rental property, bare land, vacation homes
or more.
As soon as the old property is sold, within 45 days the
seller has to come out with a list containing two or three
probable properties fit for replacement. And the whole
process of purchasing the new property or replacement
property from the list must be over in a period of 180 days.
The exchange becomes bona-fide only when the title stays
intact and whosoever held title to the old relinquished
property gets the title of the new property.
In between the sale and purchase of property, the seller
of the old property would get no access to the money he
accrued from the sale, as the money will be vested with the
‘Qualified Intermediary’ till the exchange gets over.
This 1031 Exchange process has matured and had many names
in the past including Like Kind Exchange, Deferred or
Delayed Exchange, Simultaneous or Concurrent Exchange,
Starker Trust or Exchange, Alderson Exchange, Reverse
Exchange, Two, Three, or Four Party Exchange and Baird
Exchange.
1031 Exchange provides detailed information about 1031
exchange, 1031 exchange companies, 1031 exchange experts,
1031 exchange forms and more. 1031 Exchange is the sister
site of
Greater Orlando Real Estate.
Article Source:
http://EzineArticles.com/?expert=Josh_Riverside |
