ProAPOD®

Real Estate Investment Software Blog

by Zola Mathe

Editors note: ProAPOD is just about to release updates for its real estate investment software 7.0 and real estate investor software 4.0. The hours of work invested in both these real estate software solutions, of course, has limited the number of original real estate investing articles we have been able to publish. In the meantime, you should get a lot of helpful information in the article below.

In a 1031 Exchange an investor sells his property, called “Relinquished Property,” to acquire a “Replacement Property” without attracting tax on capital gains. There are as many reasons to seek a 1031 Tax Deferred Exchange as there are investors, but the fact is that completing such a property exchange can save you a significant amount of capital gains tax when you decide to sell your existing investment property and to acquire another one. A long established section in the federal tax code, section 1031, allows real estate investors to sell property that has been held for investment purposes and defer capital gains and depreciation recapture taxes if they acquire “like kind” exchange property of equal or greater value and reinvest all of their equity.

Keeping in view the basic idea in mind, 1031 Exchange helps the taxpayers in most of the ways to sell income, investment or business real estate and property and replace with much better like kind replacement property without having to pay federal income taxes on the transaction. When the Exchange 1031 talks about the Investment property it includes all sorts of real estate, improved or unimproved that have been held for the investment or income producing purposes as part of the business or any side income. Anyone who is looking to get its real estate exchanged but has a Relinquished Property that is qualified by the exchange, the properties that are qualified for this purpose includes held for investment purposes or used in a taxpayer’s trade or business.

The foundation of 1031 exchange rule is that only properties held for productive purpose in a business or trade or for investment purposes qualify for a 1031 exchange. The foundation of 1031 exchange rule is that the properties involved in the transaction the property to be sold and the property to be bought must both be held for productive purpose in trade or business or as an investment and they must be like kind. To qualify for a 1031 exchange, both the relinquished property and the replacement property must be held for investment or for productive use in some business.

Some very basic things that one should understand about 1031 Exchange are that only business and investment property qualify for the tax deferral under Section 1031. While IRS Section 1031 allows any US investment or business real property to be replaced tax free with any other investment or business real property anywhere in the United States, there are states that do not recognize 1031 tax exchange. Currently, it is our understanding that the only two states that do not recognize 1031 tax exchange Georgia and Mississippi will only honor the tax free status of a 1031 exchange if the replacement property is also located within their borders.

It is often seen that most people interested for a 1031 exchange into a Tenant in Common property commit certain basic mistakes that jeopardize the whole transaction or results in a complicated legal situation leading to the client paying a huge tax or penalty amount. Because of all these restrictions and rules, 1031 Exchange has a lot of value for anyone who is looking for deferral strategies to avoid paying tax against the exchange of property and other stuff. 1031 Exchange has a lot of value for anyone who is looking for deferral strategies to avoid paying tax against the exchange of property and other stuff.

The 1031 tax exchange has a lot of value when it comes to the gains by not paying capital income taxes, it can in one way help you exchanging the property at a better place without much hassle, no cash transactions and no tax deductions, which in return helps you in starting a cash flow with better exchanges. A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. The most difficult part of 1031 exchange is the identifying of replacement property by the investor within a period of 45 days following the sale of the commercial property.

Also, knowing the types of property that can be exchanged under a 1031 will help property owners find replacement properties in a changing market place. Avoid these common mistakes while planning your investment for 1031 exchange into Tenant in Common properties and you can ensure a continuous flow of monthly income while your investment experience a steady growth.
About the Author

Zola Mathe recommends you visit 1031 exchange for more information on http://www.allwiseinformation.com/All_1031_Exchange_Information.html