Investment Properties: 1031 Exchanges

By: Frankie Bastek

If you are selling an investment property and planning on re-investing then the 1031 exchange is right up your alley. A 1031 exchange is basically a tax shelter allowed by the IRS where you sell an investment property and then re-invest the profit from that sale into another property. Now, keep in mind that you must re-invest the entire amount from the sale. This is not to say it has to be in one property, as long as you re-invest the full amount it does not matter if it is spread amongst several properties. In doing the exchange, an intermediary or third party, usually a company or financier will hold the funds from the sale until a"like-property" is found whereupon the funds will be released to complete the sale.

From the time that you sell your investment property you then have 45 days to identify the property or properties that you intend to purchase with the proceeds. There are also a few safeguards built into the process to ensure that it is not abused. One of these is called the 95% Exception rule. This rule states that you must acquire 95% of the property that you declare an intent to purchase or "identify." Another guideline is the fact that once your sale property closes, you have six months from that date to close on your identified properties.

Almost any kind of property qualifies for a 1031 exchange except for your primary residence. This makes the 1031 exchange a great opportunity for beginning investors to make their mark on the investment market. For complete information on 1031 exchanges it's a good idea to check the IRS web page which features complete and comprehensive information on everything that is involved with this type of financial transaction. There is also a healthy selection of companies that operate as the financial intermediary that can provide accurate info for the investor.

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