Many people overlook the time constraints placed on a 1031 property exchange, and it may lead to an unpleasant experience. For the best results when making an exchange, you need to adhere to the stipulated timelines.
If you are playing the property market, the government is more than willing to help you out, notes 1031 Exchange Place, an expert in 1031 exchange services in Idaho. Under the section 1031 of the tax code, the government lets you keep all capital gains on a property. You only need to make a property exchange instead of engaging in a conventional sale.
In an exchange, you swap one commercial property for one of greater or equal value. The tax code lets you use all the capital gains from the sale towards buying another property, which increases your equity. For the best results and experience, bear two crucial factors in mind.
Adhere to the 45-day rule
For all, its complexities, a 1031 exchange run a relatively short leash. You must complete the entire process, from start to finish within a span of 180 days. Failing to keep to these timelines nullifies the entire process and then it’s back to the drawing board. Initially, you have a 45-day grace period to identify a replacement property and to notify the IRS of your writing success.
It is worth noting that the 45-day rule includes the weekends and holidays, with no exceptions. Failing to meet this deadline nullifies the exchange and you will have to pay taxes on any gains.
Wrap it up in six months
Legally, the entire exchange should happen within 180 days from the day of the sale of the exchanged property. There are no exceptions to this rule if you don’t finalize all the dealings within the time frames the entire exchange fails. This period includes the first 45 days necessary to identify a replacement process. So, you have 135 days after the first deadline to close the deal or make a date with the taxman.
If the deal falls through, the taxman considers that to be a regular sale and you’re liable for taxes on capital gains. It is essential, therefore, to pick your replacement properties carefully. If the property is under development, be sure that it’ll be completed within the given timeframe.
While a 1031 property exchange is a great way to avoid taxes on capital gains, you need to approach the process with a bit of care. You need to adhere to the laid down timelines to enjoy the benefits it has to offer.