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What is 1031 Real Estate Exchange?

1031 Exchange has a lot of value for real estate and that is why people have got a lot of advantage by dealing with real estate. Mainly a tax deferred plan for any one who wants to get involved in the property and real estate exchange targeted and labeled as something meant for business, trade or investment purposes. But this Exchange 1031 has become very much popular for the people who want to exchange their real estate for better deals and get themselves in a better position out of that without the hassle of paying huge amount of taxes with the gain they get out of that.
Anyone who is looking to get its real estate exchanged but has a Relinquished Property that is qualified by the exchange, the properties that are qualified for this purpose includes held for investment purposes or used in a taxpayer’s trade or business. Thus in order to qualify for this, the real estate once qualified has to be exchanged with the like-kind real estate, the exchange can?t be used for personal property or something that can not qualify like personal residence, Land under development for resale, Construction or fix/flips for resale, property purchased for resale, Inventory property, Corporation common stock and many more.
This is one of the most basic and important concepts/rules in the 1031 exchange which exchanges the real estate with the like kind, i.e. it must qualify the basic real estate either held for investment purposes or for trade or business purposes. The 1031 exchange thus has a lot of value for real estate owners who want to get capital gains by means of selling and buying the real estate without paying taxes. In the last few years when the real estate has become a major investment ground, 1031 Exchange has become an important factor for anyone involved with advising or counseling real estate investors as every one looks out for tax-deferred exchanges.
Keeping in view the basic idea in mind, 1031 Exchange helps the taxpayers in most of the ways to sell income, investment or business real estate and property and replace with much better like-kind replacement property without having to pay federal income taxes on the transaction. The exchange 1031 also involves much more rules when we talk about the real estate in general, e.g. the ownership title remains unchanged even after the exchange, i.e., if two persons are owning the property or real estate jointly then the exchanged property will be the ownership of both not held singly. Similarly it goes with the organizations and corporate as the ownership will remain with the same name as the property/real estate has been changed.
The problem arises only when the real purpose of Exchange is violated, e.g. when monetary gain is there in the exchange which titled as Boot received in addition to the exchanged land. This boot is taxable and the seller has to pay the tax over this transaction. This though affects the basic concept and idea of a Exchange 1031 that is to have a completely tax-free exchange. So, it is always better to avoid boot and always replace with property of equal or greater value than the relinquished property.
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