1031 Exchange (PDF download) by majorjcyoung

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									Title:
1031 Exchange


Word Count:
536


Summary:
Section 1031 in the Internal Revenue Service is a boon for a prospective investor, selling an investment
property and wanting to make a profit by reinvesting in a similar property elsewhere in the country. This
wonderful concept works on the principle of gain rolling from the old to the new.



Keywords:
1031 exchange, 1031 exchange companies, 1031 exchange experts, 1031 exchange forms



Article Body:
Section 1031 in the Internal Revenue Service is a boon for a prospective investor, selling an investment
property and wanting to make a profit by reinvesting in a similar property elsewhere in the country. This
wonderful concept works on the principle of gain rolling from the old to the new.


There is widespread ignorance on the modalities about this exchange; as a result, 30-40 percent of property
owners end paying tax during the sale. Exchange 1031 not only fructifies into essential tax savings, but also
makes possible the swapping of property in the fairest manner at places of choice. No wonder that the 1031
Exchange excites the property market so much.


The new income-generating replacement property gives the investor the double gain of added income and
savings from tax that would have otherwise gone to the IRS coffers.


Besides saving the buyer from a huge tax burden coming in the guise of capital gains, the instrument offers
maximum immunity and flexibility in reinvesting the money gained from the sale in a replacement property
within a given period.


The exchange being time-bound is no kid’s play either. In every exchange of this kind, Qualified
Intermediaries (QI) plays a crucial role connecting the buyer and seller. The Federal Tax Code makes
service of QI mandatory since 1991 in any exchange.


The federal nature of the 1031 Exchange regulations make the Qualified Intermediary play a wizard in
guiding and structuring the exchange, satisfying all parameters and suiting the goals of the clients. It is the
QI who does the paperwork required by the IRS to document the exchange. The QI carefully prepares all
documents and serves the parties with copies of the exchange agreement, novation agreement and escrow
instructions.


The Exchange Agreement reads like a contract between the Exchanger and a Qualified Intermediary. The
Exchanger explicitly agrees to transfer his old property to the Intermediary, in lieu of a new property to be
supplied by the latter within 180 days. The contract outlines all terms and conditions under which the
exchange of properties should take place.


For a 1031 Exchange to take effect, both the old property as well as the new property should be in the
category of investment property, capable of generating income. The examples could be rental property, bare
land, vacation homes or more.


As soon as the old property is sold, within 45 days the seller has to come out with a list containing two or
three probable properties fit for replacement. And the whole process of purchasing the new property or
replacement property from the list must be over in a period of 180 days.


The exchange becomes bona-fide only when the title stays intact and whosoever held title to the old
relinquished property gets the title of the new property.


In between the sale and purchase of property, the seller of the old property would get no access to the money
he accrued from the sale, as the money will be vested with the ‘Qualified Intermediary’ till the exchange
gets over.


This 1031 Exchange process has matured and had many names in the past including Like Kind Exchange,
Deferred or Delayed Exchange, Simultaneous or Concurrent Exchange, Starker Trust or Exchange, Alderson
Exchange, Reverse Exchange, Two, Three, or Four Party Exchange and Baird Exchange.




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