Section 1031 of the Internal Revenue Code has many nuances and complexities, which leads to a lot of questions from taxpayers considering a 1031 exchange. Here are a few of the most frequently asked questions about 1031 exchanges in St. Cloud, MN.
Why Should I Consider a 1031 Exchange?
1031 exchange has many benefits, the best of which is tax deferral. When you sell a piece of real estate or other property, typically you need to pay capital gains taxes to Uncle Sam for the gains realized on the sale. With a 1031 exchange, you can defer these capital gains taxes by reinvesting your net proceeds into another investment property. As a result, you avoid a large tax hit, and keep your money working for you in a continued investment.
Can I Exchange Any Property in a 1031?
No. Not all property is considered eligible for 1031 treatment. There are several guidelines by which you have to abide. If you’re considering a 1031 exchange, ask yourself these questions:
- Is my property primarily used for personal or business purposes?
- Is my property within the United States?
1031 exchanges only apply to property within the US that has been held primarily for use in one’s trade or business. Your family home would not be eligible for a 1031 exchange, but a rental home that you own and have not recently lived in would be eligible.
How Long Do I Have to Identify Replacement Property?
In any 1031 transaction you have 180 days total to complete your exchange. The first 45 of those days are set aside for replacement property identification. It’s also important to be as specific as possible when identifying property in a 1031 exchange. Many people try to keep their options open by making general identifications, but this can get you into trouble. Instead of saying that your going to exchange an apartment complex in downtown St. Cloud for a hotel, say that you are identifying this apartment building for that hotel. Be specific about your identifications to ensure a successful 1031 exchange.
For answers to more FAQs, please take a look at our educational videos that cover a wide range of 1031 topics. If you have any additional questions about 1031 exchanges, qualified intermediaries, or related regulations, contact our St. Cloud qualified intermediaries today – 612.643.1031.