Who Can Participate in a 1031 Exchange in 2022?

Robert 'Rusty' Tweed

April 25, 2022

According to Rusty Tweed, if you’re planning to invest in real estate, a 1031 exchange is an excellent option.┬áThis investing approach allows you to sell one home and acquire another in the same location while deferring federal income taxes. You can keep more of your investment capital instead of sending it to Uncle Sam. But there are many deadlines to remember. It’s important to consult a 1031 exchange specialist.

One basic rule is to keep the replacement property for a while. If a property is sold more than two years after purchase, the IRS may infer it was not purchased for investment purposes. Assume Kim owns a $2 million apartment building and is happy with its value. She wants a $2.5 million condo with more space. A 1031 exchange allows her to move into her new home without selling her old one.

After selling the first property, the investor must find a suitable successor within 45 days. If not, the investor may be subject to capital gains tax on the exchange income. The substitute property must have the same owner and value. The investor has 180 days to execute the exchange. If these dates are missed, the full gain or loss may be taxed.

From start to finish, a certified intermediary will handle the deal. The intermediary will handle the documentation and transfer the relinquished asset to the buyer. A smooth exchange is guaranteed. The intermediary’s expertise of the IRC section speeds up the process.

Rusty Tweed thinks that if you’re not confident that you understand the process and the steps involved, consult a qualified intermediary.┬áThe two transactions do not have to occur simultaneously, but they must conclude quickly. In the event of non-compliance, the exchange may be disqualified, requiring the investor to pay the full capital gains tax. So make sure the transaction you’re considering will function and fit your specific demands.

A 1031 exchange is beneficial if you sell your property at a loss. In this case, the loss is carried forward as a higher basis on the new property. Your new property must be worth as least as much as the one you sold. If unsure, ask an accountant.

A 1031 exchange is a wonderful tax-deferred investment option. It’s a sensible method to enhance investment property appreciation. A 1031 exchange allows you to defer capital gains tax on the sale of your present investment, freeing up funds for your next property. Take advantage of the tax advantages by consulting a financial counselor. He or she will assist you at every stage.

While operational and basic finance fees aren’t deductible, they are taxed. These are not included in the ‘boot’ when exchanging property. When non-real estate is exchanged, it is taxable ‘boot’. The taxable boot is the difference between the two properties. It must be paid to make the contract fair for both parties.

Rusty Tweed believes that using a 1031 exchange has some restrictions. It must be purchased or sold within 180 days following the sale of the previous property. Contrary to popular belief, the IRS does not count federal holidays. The new property can have a mortgage. The mortgage on the new property must be equal to or greater than the current mortgage. Value differences are a problem.