Beginner’s guide to 1031exchange

The real estate industry is not at all easy to understand. You may think that it is all about selling and buying products, just like any other market place, but rest assured here things are a little more complicated. There are many assets, currencies and also taxes involved, which is why if you are considering listing any property, you should first hire a specialized realtor. At first, terms such as 1031 may sound uncommon to you, but in time you will get used to these, especially if you have a professional agent and a reliable company by your side. To begin with, read this article to get an idea about what 1031 is and how it will benefit you.

What does 1031 mean?

The term 1031 exchange is commonly used in the business sector, including real estate trading, to define the process of swapping one investment asset to another. While most of the times, these exchanges are taxable as sales, if you use the 1031, there will be a limited (or even none) tax, as a result of the swap time. Broadly, what you can do is changing the investment form, without having to redefine your capital all over again, from scratch. This applies to several sectors, the real estate included and there is no limit of 1031 in terms of number. The rule applies as many times as you wish, until you actually decide to sell the property in exchange for money.


Which are the general conditions of 1031?

First of all, you must understand that this type of exchange is applicable exclusively for business or investment properties, not for personal use. Namely, you cannot exchange your residence with another one through this method.  There are, however, certain exceptions when residential buildings qualify to the program, so talk to a specialist before starting any transaction. Another thing you have to be aware of is that the swap may take some time. Normally, the exchange takes place when two entities find similar properties and agree with each other’s terms and conditions. This, of course, is very unlikely to happen, which is why you need to be patient. You can even check DST real estate, because these provide safe properties and you can find a good replacement. You can even get the chance of designing multiple replacement properties, but in the end you will have to settle for one of them.


Do you need an intermediary?

Legally, any 1031 operation requires the involvement of a qualified intermediary. This ensures the laws are respected and both parties get a fair trade. As an independent third entity, they will hold the proceeds until the exchange is completed. In addition to this, as mentioned above, the odds of you finding a property similar with yours and also an owner willing to make the trade are very slim. For this reason, you might have to hire a dedicated company to intermediate the entire process. A qualified real estate firm provides your potential partners the safe environment for swapping, an important feature when it comes to business.


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