A 1031 exchange can be awesome for you as an investor. It is a critical part of investing that you want to have a great understanding of. It can be a complex process that will require you to plan and get the help of professionals around out
What Is An Out Of State 1031 Exchange?
A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. The term—which gets its name from Section 1031 of the Internal Revenue Code (IRC)—is bandied about by real estate agents, title companies, investors, and more. A 1031 exchange is considered a federal tax code. This means it is recognized in all states so that you can exchange from state to state. This happens more often than people think. However, it cannot be exchanged between foreign and domestic property. You can exchange foreign property for foreign property. The exchange just has to be for like-kind property.
What About Taxes?
A 1031 exchange is a tax-deferred exchange, however, you will have to end up paying capital gains depending on your situation. Some states will allow you to exchange out as long as you defer the taxes. If you are selling a property, different states have different rules for nonresidents of the state that own property. If you’re doing a 1031 exchange transaction and you expect to defer all of your capital gains taxes, then you can have the withholding of the expected taxes waived. To qualify, most exchanges must merely be of like-kind. You can exchange an apartment building for raw land or a ranch for a strip mall. The rules are surprisingly fluid. You can even exchange one business for another but there are traps for the unwary
What About A Delayed Exchange?
There are two key timing rules that you must observe in a delayed exchange.
The 45-Day Rule
the 45-day rule relates to the replacement property. This means that once the sale of your property happens, you will receive a cash intermediary. You must delegate the funds to the replacement property within 45 days. The IRS states that you can designate up to three properties just as long as you close on one of them in that time frame.
The 180-Day Rule
The 180-day rule is the second rule related to timing. This is a delayed change and it relates to the closing. This means you must close on your new property within 180 days of the sale of the old property.
A reverse change is when you buy the replacement property before selling the old property. This can still qualify for a 1031 exchange. The same 45 or 180-day window of time will apply. You must transfer the new property to an exchange accommodation title holder to do this.
For more information on different ways to purchase property or invest in Mesa, AZ real estate, contact me! I would be happy to assist you with all of your buying, selling, and investing needs