For rookies in economy field, 1031 Section of the economy Law is used for real estate transactions and it is also called “like kind real estate transactions”. As the name implies, owners can change their property for another similar one. The benefit of doing so is that while making an exchange, the owner is not paying any tax. However, this Section is not applicable to personal use properties. It is strictly designed for business purposes. However, owners must always hire some professionals in like kind exchange real estate for a better outcome. Below are some aspects every business owner interested in this matter should know.
1. It is exclusively designed for business purposes
Therefore, if you have thought about finding a new home using this Section, stop there. Only business property owners can use 1031 to swap their goods. For example, if you have a big farm, you can swap it for a warehouse evaluated at the same market price with your property, without paying any taxes. If you sell your property and proceed to buy another one, when money enters your account, you must pay an income tax. Now you can avoid this with Section1031.
2. Like-kind is different from you might think
You might have noticed the fact that in our previous example we mentioned a warehouse and a farm. Yes, the property must have only the same market value, not the same purpose or destination. With rules that are this liberal, you can become the owner of an apartment building with no problem, even if you previously had a car business. It is important to only be estimated at the same value.
3. Before closing any deal, take into account mortgage
Many are surprised by the great deals they are able to find, however, they are not aware about other costs like mortgage. It is not a surprise for anybody that these individuals have found themselves at some point in the inability to pay all their taxes. All debs that the property is a subject of must be taken into account in order to make sure you can pay for them.
4. Delayed exchanges are possible
And this is where third parties come. In order not to pay any tax for the money you receive, you can hire a specialist to have them until you find the desired exchange property. When you find the perfect business property for you, you can make the swap and not pay any taxes. For better results, you must hire some specialists to help you make the best transaction possible.
Professionals are able to help you even in the most complicated matters and if you decide to take advantage of the 1031 Section, you most certainly need the help of one for the best outcome. Moreover, this way you will make sure your transaction money will never fall under any tax law. Section 1031 is the best alternative for business owners who desire to make a switch in their portfolio. Do some research and hire some professionals who are able to help you in these matters.