1031 property exchange? Should you or should you not?

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Those trying to find a new business idea oftentimes think about the 1031 Section. However, many still remain reluctant regarding this type of investments. Thus, the big question pops up. Should you or should you not? We will tell you from the start that yes, you should. They are a great investment opportunity even for those investors that are eager to switch the domain of their business in no time and from a much relaxing spectrum. 1031 exchange programs are great because they are offer great profit opportunities and great investment ideas. However, let’s find out more about these investment opportunities.

There are strict requirements

Both the property you plan to sell and the property you plan to swap it with must meet certain requirements. Both properties must have a commercial use, and the both of them must be like-kind. This does not mean that you have to swap a hotel for another hotel, but to find a property evaluated at the same market value as yours. Otherwise, the cash money resulted from the swap till be taxed. This defeats the purpose of this great section.

Not all types of properties are included in the Section

The type of holding you have on the property in discussion weights more than you think. For instance, the Section is not available for equity or stock securities, partnership interests, certificates of trust, LLC interests cannot be a subject of these programs.

Defer taxes forever

The great thing about these investments is that they are basically limitless. There is no limit put to the number of exchanges you can do. This translates into the opportunity of rolling one investment into another over and over again.

Your debt matters

The amount of mortgage or debt for the replacement property must be equal or exceed the amount of debt or mortgage you have on your current property. Otherwise, the difference will be taxed just as any other type of capital gain.

Respect the timeframe

Yes, these swaps must be done in a strict timeframe. Make sure to consult a specialist and follow their advice closely. There are plenty of consulting firms that could guide you in the matter of these property exchanges. Make sure to do your homework well before choosing one.

You can swap one larger properties into two or more small ones

So, you want to swap a large property you have for smaller properties? That’s perfect, because this section allows investors to juggle with whatever properties they want, as long as the one’s value does not exceed the other’s, cumulated.

These are some of the most relevant aspects you should bear in mind when investing in these programs. They are very flexible. However, make sure to follow the general guidelines of the Section and collaborate with a great consulting company. They will help you find a replacement property faster and they will make sure that you remain tax free during the process.  

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