1031 exchange tips for business owners

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There is nothing more important for a business or franchise owner than to prepare for an upcoming sale. When moving the company to another location, there are many aspects to take into consideration. What you should think about is the tax bill that you are going to pay. The value of the office building increases with time and the result is that you will not be able to sell it for profit and avoid paying capital gains taxes. As a matter of fact, there is a way to defer capital gains taxes and saving capital for reinvesting in another business. What you should do is swipe your asset for a similar one. The 1031 property is basically exchanged for a like-kind one and it will not be considered that you have realized gains.  What you have to keep in mind is that the trade involves a great deal of work and that it is not always easy to understand. If you genuinely want to use this powerful option, here are some things you need to know.

Be careful in your selection

It must be noted that the tax-deferred exchange applies only to business and investment properties. This basically means that you cannot use your personal property for the trade. While the 1031 exchange offers the opportunity to make massive tax savings, it cannot be used for personal applications. The great news is, however, that you do not need to find an identical real estate. For instance, you can swipe your office building for apartments. What is important to keep in mind is that the real estate has to be similar in nature and actual likeness is not required. Exceptions mainly apply to foreign properties. If you are interested in moving to another country where taxes are lower, you have the freedom to do so.

Act immediately when completing the transaction

One of the greatest disadvantages of the Starker exchange is the fact that you have to move quickly. To be more precise, you have 45 days from the day you sell your relinquished real estate to find another one. It does not really matter how many options you find; what is important is to purchase one of them. Attention should be paid to the fact that there is yet another time limit. You have 180 days to complete the transaction. What can be understood from this is that the sale and the purchase do not have to take place at the same time, but you do have to move speedily.

You must use a Qualified Intermediary  

You may be tempted to think that you can handle things on your own, but the truth is that you will be needing a Qualified Intermediary. A middle person can simplify things, the result being that the complexity of the transaction will be significantly reduced. You will not have to worry about drawing the paperwork, not to mention that if the swipe is delayed, you will need someone to hold your money. You can use an accountant or an attorney.  

August 2022