Things You Should Know About 1031 Exchange.
1031 exchange is a tax code that regulates the exchange of property. Not all real estate properties qualify for the exchange. Like-kind properties of production and investment uses qualify for exchange in the 1031 code. In comparing properties for exchange only those that share common nature and not the form can be termed as like-kind.
When you have an investment ownership and you need an exchange you must search for a similar nature of property so that you may get the exchange. A single-family residence can be exchanged for a duplex, raw land for a shopping center, or an office for apartments. Such investment properties are exchanged with one another. The exchanger has the flexibility to change investment strategies to fulfill their needs. Personal residence is never exchanged for an investment property in 1031 exchange or stock in trade.
Investors who may exchange properties quickly after getting it or have many such exchanges are considered to be in business and exchange 1031 does not tolerate that. If an investor tends to exchange properties right after they acquire them, the properties may be considered as stock in trade and not fit for 1031 exchange. Anyone dealing with stock in trade cannot be allowed to exchange their property in the 1031 exchange code. They are not allowed to exchange their real estate unless they can prove that it was acquired and held strictly for investment.
There are no clear guidelines as to what constitutes being a dealer. There are factors checked to show whether one is a dealer or not. The purpose of the property is another consideration when determining a dealer property. Other factors to know a dealer property is the use of that possession and the reason why it was first acquired.
There are properties that are not supposed to be exchanged in the 1031 exchange. One property is a primary residence as it is not an investment. However, any portion of that primary residence that is used in a trade or business or for investment may qualify for a 1031 exchange. 1031 exchange code has some few properties that it does not allow for exchange even if it is for investment. Securities, notes, stocks and the like involve the properties that are not allowed for exchange in the 1031 code.
It is recommended you have a facilitator for your exchange. If it means going online, visiting friends or any other means, ensure you get the track record of your facilitator. Escrow companies, real estate agents attorneys and the like should not act as facilitators. You have the facilitator to provide with any information concerning the exchange so make sure to ask questions. Any documents that the facilitator uses, you should save for the lawyer to review.