A key fact regarding 1031 exchanges is that you may not use your 1031 proceeds to make improvements on land you own. This is a common pitfall for unwary real estate investors. In order to qualify for a capital gains tax deferral, your replacement property has to be of LIKE KIND with the relinquished property. Thusly, the replacement property must comprise real estate valued at or above the value of the property sold. An improvement that is incomplete is thought of as a contract for service, which represents personal property but not real property. Due to the fact that a property acquired in a 1031 tax deferred exchange must be equivalent in type and value with the property sold upon closing, it is, at times, hard to find a property that fulfills these legal requirements and also meets his or her specifications.
So, next time you find yourself in the position to sell an appreciated piece of real estate or other type of investment property, take a moment to consider the profit you could gain were you to exchange. If you decide a 1031 exchange instead of selling outright, you can build your wealth over time and come out ahead.
March 27th, 2008 at 6:34 pm
[...] Fast Loans - Personal Unsecured wrote an interesting post today onHere’s a quick excerptA 1031 Tax Deferred Exchange Finance No Comments ยป A key fact regarding 1031 exchanges is that you may not use your 1031 proceeds to make improvements on land you own. This is a common pitfall for unwary real estate investors. In order to qualify for a capital gains tax deferral, your replacement property has to be of LIKE KIND with the relinquished property. Thusly, the replacement property must comprise real estate valued at or above the value of the property sold. An improvement that is in [...]