The Mechanism of 1031 Tax Deferred Exchange

When an investor sells the property (relinquished property) in a 1031 tax deferred exchange, a Qualified Intermediary (QI) holds the funds gained from the sale. The investor then directs the QI to purchase a new property that is either equal or higher in value than that of a relinquished property. By this method, the investor is saved from paying the capital gain taxes that he otherwise would have had to pay over the sale of the relinquished property. Without 1031 like-kind exchange, the investor will always have to pay capital gain taxes every time he moves from one property to another. Additionally, saving up on capital gain taxes puts the investor on a better road to become wealthier.

 

Here are some things you should know about 1031 like-kind exchange:

  1. 1. Personal residences cannot be exchanged in a 1031 tax exchange. 1031 like-kind exchange is a provision for investment and business properties only.
  2. 2. You need to buy a replacement property that is equal or higher in value than that of a relinquished property.
  3. 3. You will need a Qualified Intermediary to carry out the 1031 like-kind exchange.
  4. 4. You are required to identify a new property after the closing of your relinquished property.
  5. 5. You are also required to close in on one or more identified properties within 180 calendar days of the closing of your relinquished property.

 

If you are looking for a 1031 exchange company in Massachusetts, look up to FAI Exchange.

 

FAI Exchange caters realtors and business property investors who are looking for ways to defer capital gain taxes. FAI Exchange’s skilled and talented staffs will always be there to explain you every aspect of 1031 like-kind exchange. Our services also include preparation of documents with all appropriate forms required for a smooth 1031 like-kind exchange to happen.

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