Established for real estate barons and tycoons, 1031 exchanges have existed since the 1920s. Named for the IRS code which refers to them, tax saving tool also known as "flip" or "as" exchange rate has been gaining strength as a way for Americans save money on property taxes, by deferring to another, the newly acquired property.

1031 exchanges are a simple concept surrounded by not-so-simple details. If you own a piece of property, and you want to sell and buy another property of equal or greater value may differ from their capital gains taxes by implementation of a "like" exchange rate.

Both the property sold and the new property you buy must meet certain requirements.

Both properties must be held for investment or business use. This can include property that is rented. Its uses can be interchangeable, however. For example, a piece Raw land can be exchanged for a rental property. Real agricultural goods, but can be changed by office buildings, apartments, or storage facillities. The type, as standards are quite flexible when it comes to trade in real estate.

To obtain a complete deferral of taxes on income, All proceeds from the previous ownership, shall immediately be re-invested in the new property, which should cost the same or more than the old property. Sometimes this can occur simultaneously, but most of the time delay in the exchange should take place.

Once the former property is sold, the investor generally has 180 days to close on a new one that meets criteria. During the 180 days, a qualified intermediary must manage all the assets and carefully arrange the exchange. You must also specifically identify a replacement property thinking about buying within 45 days from the date of the sale of the original property. However, you can identify more than one potential replacement within this period.

There are several other limitations to the type and value of the replacement property, so it is better to make a financial professional for details. For example, you must file an extension of the tax where the sale of the original property was later in the year (for example, from October to December) and the deadline for filing their taxes are raised before general closing deadline of 180 days. However, this would not be necessary if the 180-day period occurs earlier than normal tax return date.

In some cases, you can flip the property in the opposite direction. If you find you want to buy new property before selling your old investment, you may qualify for a "reverse exchange." Even defer your tax capital gains at your new property, you just do it in the opposite order.

In all cases of flipping, you should have what the IRS has considered a "housing owner change" that really clings to the assets involved in the purchase.

One advantage of the exchange is that, in theory, you can avoid paying taxes on capital gains forever. If you keep the properties of all his life after his death his family may be entitled to sell the property, capital gains tax free. Another important advantage of the exchange is that it provides taxpayers with the ability to accumulate additional capital tax deferred through the use of loans, provided the taxpayer continues to reinvest revenue from sales of higher value goods.

Due to the complexity of trade in 1031, it is important to have a financial professional familiar with real estate by his side. An attorney general, is also recommended. But depending on your situation, the complexity can only be worth the tax savings that could receive.

A legal and ethical way to defer payment to Uncle Sam for as long as possible. Now that is a technique that would make most of the magnates of the 1920s proud.

About the Author:

Robert Valentine is a well-known expert in the matters concerning investors. His popular
Personal Finance

articles have been published by several publications throughout the United States. Please visit his website,

http://www.themoneyalert.com
to view his column.

Article Source: ArticlesBase.com – An Even Exchange

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