Important Rules On 1031 Transactions

If you are a real estate investor, the chances are that you are aware of the role of Section 1031 for saving taxes. It lets you defer capital gains tax on real estate transactions. To enjoy the benefits of this Section, you have to comply with regulations as implemented by IRS.

Through this blog post, we discuss some rules of Section 1031 you must know as an investor.

No exceptions for the deadlines

If you are unable to complete the transaction as per the time frame, you are supposed to pay the tax on capital gain. For example, if you fail to close the purchase within 180 days, you can’t enjoy the benefits of Section 1031.

45 days to identify purchases

After selling your property, you get 45 days for identifying potential purchases. You are allowed to identify three properties in this period, provided you buy one of them.

Transaction must be qualified

This means the property you are selling must have been used for investment purposes.  You have to hold the property for passive income.

Properties should not be held by different owners

The 1031 exchange is applicable only if the same owner sells the replacement property and buys the relinquished property. If you purchase the property through an LLC and sell one using a personal name, the exchange will be invalid.

If you are a real estate investor from Massachusetts, you can defer capital gains tax by taking the support of FAI Exchange. This firm helps you in DST investments, which can act as replacement properties in exchange.

Read more about the services of FAI Exchange here.