How to Set Up a 1031 Exchange
A 1031 exchange is termed because it originates from Section 1031 of the Internal Revenue Code (IRC). A 1031 exchange allows people to transfer like kind property without any gain from the exchange. There also are no losses in a 1031 transaction. A 1031 exchange can be complicated, so it is important to consult a lawyer or accountant to make sure the taxpayer receives the best outcome from the exchange.
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Instructions
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Structure the transaction to focus around like property. The taxpayers must use the property either in business or as an investment. Like property is any property that has similar use, not property that is just similar in nature. For example, male livestock and female livestock are not like property because even though they are similar in nature, they are not similar in use. The following never will be like property for a 1031 exchange: stock in trade or other property held primarily for sale; stocks, bonds or notes; other securities or evidences of indebtedness or interest; interests in a partnership; certificates of trust or beneficial interests; and a chose in action.
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Identify the property the taxpayer receives. This must be accomplished within 45 days after the taxpayer transfers his portion of the 1031 exchange.
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Receive the property. The property from the transaction must change hands the earlier of 180 days after the first property exchanges hands or the due date with any extensions of the person transferring the property in the year he transfers his property.
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References
- Photo Credit A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com
