New apartment building in suburban area

What a Successful 1031 Property Exchange Should Have

Most investors and business owners who want to extend their investments retain the services of an expert when using a section 1031 property exchange. A qualified intermediary will ensure that you get through the process without a hitch.

If you’ve not made property exchange a part of your investment strategy, you should follow the advice of a section 1031 qualified intermediary, who might advise you to take advantage of the law. You’re passing up a chance to grow your net worth and commercial property. The government lets you defer capital gains tax on the sales proceeds as long as you put the money into a commercial real estate investment. With the help of an expert, you can get through the process seamlessly.

Keep to the time frame

You will need to put in a request to the IRS to take part in a section 1031 property exchange. Once you get the nod, you have precisely 180 calendar days to conclude the entire process. Initially, you’ll have the first 45 days, including weekends and public holidays, to identify up to three replacement properties. After that, you have the remaining 135 days to seal the deal. You need to sell your current property and buy the replacement properties.

Having an expert familiar with the entire process helps to ensure that you meet these tight deadlines. Given that there’s a lot of legality and paperwork involved in the process, it’s imperative that you retain expert help. Otherwise, you might run into unforeseen delays that could have you miss the deadline. Missing the deadline means that you forfeit the tax advantages that come with the process.

Avoid costly mistakes

man in an exchange property

The like-kind property is a highly regulated process, and you need to follow the rules to the letter. Any deviation could have you disqualified and lose the benefits that come with the process. For instance, the value of the replacement property shouldn’t exceed twice the value of your current property. Identifying and buying the replacement property under the tight deadlines can prove to be quite a tricky undertaking.

With proper execution, the replacement properties can help diversify your portfolio and increases your rental income. An expert will help you reap the maximum benefits from the exchange process. Again, they will be discreet enough to let it slip that the buy is a part of a 1031 property exchange. Sellers know the tight deadlines that come with the process as leverage. They can use the information to hike the selling prices or to frustrate your effort.

It’s a legal requirement

One of the hard requirements of taking part in a like-kind property exchange is that you must procure the services of a qualified intermediary. In addition to helping you with the legalities of the process, the intermediary handles all the financial transaction. For starters, you cannot receive any of the sales proceeds during the exchange. The intermediary will hold the money pending the purchase.

Should the buyer deposit the money in your bank account, then you’re disqualified from the property exchange. They will retain the sales proceeds and pay the sellers of the replacement properties. While you will pay for their time and services rendered, they are worth every penny. A successful exchange is likely to boost your financial income for the rest of your life.

There’s no denying that a section 1031 property exchange is quite lucrative for the players in the commercial real estate. The exchange process lets them defer taxes on capital gains, which means they have a larger budget when buying the replacement property. Retaining the services of an expert increases your chances of success.