Reasons to Do Tax-Deferred Exchanges.
Taxation has leaped us a lot over a long period of time.You obediently pay taxes but you never see any development around you.The government expects every earning citizen to pay taxes.
One of the requirement to qualify you for 1031 exchange is having property. You also need to be able to identify the property to be used for tax deferment within 45 calendar days. The property must also be legitimate, you have to have documentation to prove ownership, maybe of a house, or a building.
If that is not the case the property owner will be expected to pay tax on the difference, this is what is called trading up. If you want to benefit from 1031 exchange trading up rule must be clearly understood.Again, it must be the same property owner. The individual’s name of the buyer and seller must be the same.
If the property was in use for a few days, they inquire further why the property is in early of being sold. If it is an old property that was in use, less questions will be asked.
If the property being sold to the related party, it must have been held for at least two years, this rule can be avoided if you sell to a non-related party.If tax-deferred exchange has so many confusing rules why then do people still do it?
You start earning from the rental houses and get income tax deductions such as depreciation which you cannot get from land as its value appreciates everyday.There is no need to have a big mass of land that doesn’t bring you any income. You can dispose and still acquire better and newer property and in areas where they are much more valuable.People buy and sell property everyday.
This is a property you are so much attached to, probably it is your ancestral home, but it doesn’t bring you any income and you now have an option of exchanging it for a much higher value. Ten years from now, you will look back and smile for the decision you made. Yes, the customer is always right, but you also require a peaceful mind, just sell those rental houses and buy others where tenants have lesser problems.
You must appreciate that 1031 exchange is like a free loan from the government. You will not need to do other jobs.
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