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What is a Disregarded Entity in a 1031 Exchange?
You have a variety of business entities from which to choose when it comes to initiating and completing a 1031 exchange. According to the IRS, individuals, C corps, S corps, general or limited partnerships, limited liability companies, and trusts – basically, any type of taxpaying entity – can set up to exchange investment properties under 1031 exchange rules.
What is the Important 1031 Exchange Terminology to Know?
As we’ve mentioned in previous blogs, the 1031 exchange is a method to potentially defer capital gains taxes on the sale of real estate used for trade or investment. Through the process, you “swap” the real estate you currently own into other real estate of equal or greater value.
1031 Exchange 45-Day Rule Extension: How it Works and What to Consider
A 1031 Exchange has many rules, and getting any of them wrong can mean cancellation of the exchange. If that happens, the investor will get their money back, but it will come with a hefty tax bill since gains on the relinquished property are now taxable.
What is the Most Common 1031 Exchange?
A 1031 exchange is a tool that investors can use to defer the payment of capital gains taxes if they sell a real estate asset and reinvest the proceeds. Although long-term capital gains tax rates are significantly lower than the rates levied on ordinary income and short-term gains, the tax can reduce profits by up to 20 percent.
Can You 1031 Exchange Forever?
A 1031 exchange is a great vehicle for deferring gains on the sale of a property. The tax bill can be quite burdensome if the property being sold has appreciated markedly. Investors can potentially get around this problem by utilizing a 1031 exchange, pushing their taxes due on the gain out into the future.
Failed 1031 Exchange Installment Sales: What You Need to Consider
There are a lot of moving parts and pieces in even the simplest 1031 exchange, and each aspect of the exchange must adhere to stringent Internal Revenue Service requirements and guidelines, without exception.
Can You Do a 1031 Exchange on a Short-Term Rental Property?
The purpose of a 1031 exchange is to defer the obligation to pay capital gains tax when you sell an investment property. The IRS has explicit rules governing these transactions, including tight timelines and requiring the taxpayer to use a Qualified Intermediary to oversee the financial and reporting aspects.
Who Should File Form 8824?
Any taxpayer who completes a 1031 exchange during the tax year must file IRS Form 8824 as part of their tax return. The form reports the amount of gain the taxpayer is deferring by employing the 1031 exchange.
Does a 1031 Exchange Need to be Completed in the Same Year?
Real estate investors who undertake 1031 exchanges in order to defer capital gains tax liabilities or diversify their real property holdings have six months from the closing date on their relinquished properties to complete their exchanges.
Can You Borrow Against a 1031 Exchange Property?
One of the potential benefits of direct real estate ownership is the ability to “borrow” against it. This is known as a “cash-out refinance,” and it involves applying for a new loan to pay off the property’s current loan, while obtaining extra cash based on that property’s equity.
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