What you Should Really Know about 1031 Exchanges

Man doing a 1031 exchange

35-word description: In this article, we will be discussing what you must know about 1031 exchanges.

Taxes and real estate has always been confusing for most people. There are hundreds of different types of taxes out there, and one of them is the 1031 exchange.

The 1031 exchange is slowly making its way into household and office conversations. The 1032 exchange simply means that you can swap one business, property, or investment asset for another. Most swaps are taxable; however, if you want your swap to be non-taxable or at least have lower taxes, then you can go for the 1031 exchange.

Today, 1031ex.com shares some essential facts about the 1031 exchange that you have to be aware of.

Can I Use the 1031 Exchange for my Personal Properties?

Unfortunately, no you cannot. The exchange is only for investment and business properties, which means that you cannot use it to swap your home for a new one.

However, a few items or personal properties can be valid for the 1031 exchange. For example, a painting can be swapped for another under the 1031 exchange. This rule only applies to personal properties and not for corporate stock or partnerships though. Make sure to read up on what is excluded and what properties pass for the said exchange.

Will I be Taxed if I receive Cash?

The intermediary will likely pay the replacement property at the end of 180 days. This is known as a “cash boot”, which will be taxed as partial sales proceeds from the 1031 exchange or your property’s sales.

A boot is defined as cash or other property that is usually added to a 1031 exchange to make the trade between both ends equal.

When Should I Formally Close my Property?

You have 180 days to close your property when doing a 1031 exchange formally. The two time periods run concurrently, so make sure to start counting as soon as the final sale of your property has been sealed and done.

Once you have designated the replacement property after 45 days, then you have 135 days left to close on your chosen replacement property properly.

Taxes and exchanges can be confusing, so make sure to read up on it and do your research to make sure that everything goes smoothly.