Getting replacement property is a great way o defer your taxes. Real estate investors have used the 1031 exchange for very many years so as to defer on taxes after property disposal. Real estate investors have the right to delay payment on their taxes from capital gains from the sale of property with a properly executed 1031 exchange. Though the law dictates that you have to pay property sale taxes immediately you sell investment or business property, you can go around this by getting replacement property.
You defer taxes because the law views this as more of an exchange rather than a sale. The idea behind tax deferment is that since the investor acquires replacement property, there is nothing left to pay taxes with. Though a lot of things can be classified under replacement property there are certain things such as inventory in trade, stocks, partnership interests and certificates of trust that are not recognized as replacement property.
To enjoy tax deferment after the sale of property, you need to ensure that the replacement property you acquire is similar to the one you sell in terms of nature, class or character. It is important to note that you only have the right to postpone tax payment if the property you acquire as replacement is either of greater value of equal value to your original property. Discussed in this property are tips for finding the right replacement property.
Do not narrow down your options when it comes to choosing replacement property. Do not narrow down your options since the real estate industry is very competitive and anybody can buy the property you have your eyes on before you.
Ensure that you consider even options you may have not thought of before provided they ae similar to the property you want to sell.
Ensure that you give yourself enough time. You may find choosing the right replacement property a daunting task, which is why you have to ensure that you have enough time. You should start looking for replacement property even before you sell your current property because there are strict timelines in the 1031 exchange that have to be adhered to.
Finally, you need to find yourself a number of trusted advisors. Getting replacement property on your own can be difficult, which is why you need to hire a team of experienced advisors to help you. One such advisor is a financial planner. You should however ensure that you hire a financial planner who deals with products that qualify for the 1031 exchange. Your team should also have a commercial real estate broker in its midst for a wider window for replacement property acquisition. Giving yourself time is the most important thing you need to do.