3 Questions You Must Know About 1031 Exchange Property
Believe it or not, properties that are used for investment, trade or business can be exchanged for like kind property. What does like-kind means is, the nature of investment instead of the form. Any kind of investment property may be exchanged for a different kind of investment property. You may not believe it, but a single family residence may be traded for a raw land, duplex for an office for shopping center or office for apartments. Basically, any combination can work and the exchanger has flexibility to change their investment strategies in an effort to fulfill their needs.
However, you have to know that you can’t trade notes, stocks, certificates of trust, bonds or partnership shares or any other similar items. Trading investment property for property in foreign land, personal residence or stock in trade is not available either. The houses that are built by developers and are currently offered for sale are stock in trade.
If you wish to understand better what is 1031 exchange property, let us take a look at some of the frequently asked questions about this subject.
Question number 1. What doesn’t qualify for 1031 exchange – properties that are held for productive use in business, trade or investment is qualified for a 1031 exchange. Then again, there are some tax codes that are made to exclude properties even if it is used in business or trade or for investment.
Usually, a primary residence doesn’t qualify for exchange as it isn’t used in business, trade or investment. And with that in mind, that particular portion of primary residence that is used for business, trade or investment can qualify for 1031 exchange.
Question number 2. How to get started in 1031 exchange – it is as basic as calling your exchange facilitator to get started with exchange. Before you make the call, it’ll be a big help to have the info about the parties to transaction at hand like names, phone numbers, addresses, file numbers and so forth. During the call, your exchange coordinator will ask questions about the property that is relinquished and any replacement property proposed.
The initial discussions will vary drastically from one company to the other when it comes to the amount of requested detail. There is little actual information required to structure a basic delayed exchange.
Question number 3. How to choose a facilitator – call an exchange facilitation firm when preparing for an exchange. You can have the names of facilitators from different sources similar to lawyers, escrow companies, real estate agents, CPAs and from the internet. It is your job to ask questions regarding the procedures applied as well as the assistance that they can offer in the event that there’s a problem that arise.