It is just as important to understand the property that does not qualify to participate in a 1031 exchange as it is to determine the type of property that is applicable. Property that is held in a business or trade productive use purpose or for investment does qualify for a 1031 exchange. The tax code does go on to exclude specific types of property even if that property is used in business or for investment. This is typically involving properties like bonds, stocks, notes, interest and securities that are in partnerships. Property that is mostly held primarily for sale is also excluded from being included in a 1031 exchange. Excluded property would also include business inventory. In terms of real estate, you must purchase the property with the intent to sell it like a fixer upper or vacant land that will ultimately be developed into a house. An investor who turns over residential properties such as a private developer may actually be classified as a dealer. Furthermore, the primary residence of you and your family does not qualify for a 1031 exchange because it is not used for business or trade purposes or for investment. If there is a portion of the primary residence that is used for these purposes, however, that portion may qualify for a 1031 exchange as well. It is important to understand that different types of property that meets the guidelines for a 1031 exchange and you can do this by consulting with your qualified intermediary sooner rather than later. Knowing all of your options can be extremely beneficial in this particular situation.
What Questions Do I Need to Ask In Order To Structure a 1031 Exchange?
In order to network with a qualified intermediary to carry out your 1031 exchange you may need to provide some basic information to this individual. This includes your address, phone number and name as well as the escrow officer's contact information as well. The following questions should also be considered when you are attempting to hire a qualified intermediary.
- What property is being relinquished?
- What was the cost?
- When was this property acquired?
- How is this property currently vested?
- How was the property used during your time of ownership?
- Is there a sale currently pending with this property?
- Who is closing the sale?
- What would the equity value and mortgage of the property currently be?
- What property would you like to acquire?
- What is the equity mortgage and purchase price of that property?
- If you currently have a purchase pending, who would be handling the escrow?
- How is the property to be vested?
Having clear answers to all of these questions can be extremely beneficial before you hire the right person to help you with your 1031 exchange. Contact someone who has years of experience in the field and has worked on numerous 1031 exchanges. Being organized and staying on top of deadlines goes a long way in properly deferring your capital gains taxes.
Source : articlesbase.com
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