While it might come as a surprise, the federal government has a soft spot for players in the commercial real estate sector. To help you make a better investment in the cash-intensive industry, the IRS created Section1031 in the Tax Code. By following the guidelines of this section, you can hang on to all the capital gains made when disposing of commercial property.
However, there’s a catch, albeit a small one. You must use all of the proceeds to acquire another property. If you want to join the bandwagon, then it’s time to talk to a qualified intermediary like 1031 Exchange Place.
Pay Attention to Details
As with any property deal, you’ll be up to your eyeballs in paperwork when carrying out a 1031 property exchange. Also, many of these documents are filled with legalese, meaning that you are likely to miss some details. Unfortunately, missing one step in this highly regulated process can spell a disaster.
To put your capital to good use, you should retain the services of a qualified expert. Remember that a successful property swap entails both selling and buying properties, meaning that it has a heavy workload. You must sell your current property then make an offer for the replacement property.
Navigate Tight Deadlines
One aspect that makes 1031 property exchanges tricky is the tight deadline. Once your request is approved, you have precisely 180 calendar days to see it through. For starters, you have 45 days to identify and present replacement properties that fit the bill.
As long as the value of the replacement property doesn’t exceed 200 percent of your current property, you can present as many as three of them. After the initial 45 days, you have 135 calendar days to close the deal on the properties. Failing to meet the timeline makes the exchange fall apart, saddling you with hefty bills and capital gains taxes.