FAI Exchange – The Mechanism of 1031 Tax-Deferred Exchange
Whenever you decide to swap your old property with a new and better one, you are always concerned about paying the capital gain taxes. This makes running a business around property dealing difficult. It is for this reason, section 1031 came into effect. The section 1031 tax-deferred exchange helps you to easily sell your old property and replace with a new one. However, the entire process is not that simple and it requires the involvement of Qualified Intermediary (QI).
The process begins with the property owner to first sell his property and the funds received are kept with the QI. The QI is then directed to purchase a replacement property that has an equal or higher value than that of the property sold. Remember, you cannot purchase a property that is lower in price than the property you are selling. By doing so, you are able to defer all capital gain taxes that you otherwise would have to pay.
A property that you are selling is termed relinquished property and the property that you buy from the funds earned is called the replacement property. However, not all properties are eligible for a 1031 tax-deferred exchange. If you are thinking of selling your residential home, 1031 exchange is not for you.
1031 tax-deferred exchange caters to the needs of professionals who are investing in properties to grow their business. A property that you sell should meet certain characteristics. These characteristics may include the level of the sale price, equity, and debt level.
The owner of a relinquished property may consider selling the property for a number of reasons:
1. To unlock the equity tied up in the underperforming, yet appreciated the property.
2. When the property is too management-intensive.
3. In order to acquire a property of higher quality; or
4. To acquire a property that produces higher and consistent income.
Similarly, fractional ownership of real estate can be described as a share in the ownership of a real property. It is usually seen when a property is too expensive, too big to be managed by an individual or any other legal reason. The property can be owned by 5 people, where each person shares the maintenance, taxes, and takes the turn to become the owner of the property.
Exchange fractionally owned real estate property is becoming a popular and effective business tool. But, it also is extremely technical and maybe a task risk.
Whatever your reasons may be to go through a 1031 tax exchange, Fai Exchange can help you with it.
You can contact us by visiting our website https://www.fai1031.com/ and fill up the form to get a call back from us. Let us help you in a successful and satisfactory 1031 exchange.
William L. McNamara
P.O. Box 487
Dedham, MA 02026
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