1031 Exchange by iupon13


									?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

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

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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