Most Common Terminology Used in 1031 Exchanges2 min read
if you are new to the game at 1031 exchanges, but you are interested in deferring capital gains taxes while taking advantage of this real estate investment opportunity, read on to learn more about some of the most common terms and phrases associated with 1031 exchanges. Making sure that you are clear about the rules and regulations of these exchanges is critical for complying with IRS rules and successfully deferring your capital gains taxes.
Simultaneous you may elect to participate in a simultaneous exchange. The property that you are disposing of and the property you are obtaining to replace it will go through their closing transactions on the same day. While this is rare, it can be beneficial to get this scheduled so that you are sure to comply with all of the timelines necessary for 1031 exchange.
In a delayed exchange, you would sell the original piece of property first and later locate the second property to replace it. If you go this route, you must remember to complete both transactions within the period of 180 days in order to defer your capital gains taxes.
Build to suit exchange: in this kind of exchange, the money received from the sale of the initial property will be applied to improvements on the new property. In order to take advantage of this, the new property must be less expensive than the initial property.
Personal property exchange: since 1031 exchange is a rather broad application, you may be eligible to trade personal property falling under the same category of assets through a personal property exchange. Reach out to your accountant to learn more about how these work and whether it be beneficial for you.
Reverse exchange: under a reverse exchange, still the getting rid of one property and purchasing a second property. Where the reverse comes into play in this scenario, you buy the second property before you select first one.
Qualified intermediary: the qualified intermediary is the third party appointed to accept funds on your behalf and use them to purchase the second property. The qualified intermediary is an integral part of the successful 1031 exchange. You may disqualify yourself from deferring capital gains taxes if you follow the wrong guidelines related to receiving money related to real estate. Make sure you have done your research about how one exchanges work before you engage in the process so that there are no unpleasant surprises down the road.