Tax deferred exchanges are great ways to postpone capital gains taxes on your real estate investments. But be sure you follow the rules!
1) Exchanges can be used only for investment properties.
2) Exchanges must be made between like kind properties – investment or business. But they do not have to be the exact use. A small business property can be exchanged for an apartment complex.
3) To meet the IRS guidelines for an exchange, you must identify the replacement property for the one you exchange within 45 days of the initial property transfer date. You may identify up to 3 properties to total fair market value of the property being sold.
4) You must close on the replacement property within 180 days from the initial transfer date of your property to the other party. It is also possible to buy the replacement property first in a reverse exchange.
1) Exchanges can be used only for investment properties.
2) Exchanges must be made between like kind properties – investment or business. But they do not have to be the exact use. A small business property can be exchanged for an apartment complex.
3) To meet the IRS guidelines for an exchange, you must identify the replacement property for the one you exchange within 45 days of the initial property transfer date. You may identify up to 3 properties to total fair market value of the property being sold.
4) You must close on the replacement property within 180 days from the initial transfer date of your property to the other party. It is also possible to buy the replacement property first in a reverse exchange.
5) If the property exchange is not simultaneous, you must use a qualified intermediary to hold the money until the exchange is completed.
6) Any cash left from the exchange (boot) will be taxed at capital gains rate.
7) Properties must be in the USA
Like kind exchanges are often complicated. Failure to follow the rules can result in a disallowing of the exchange. Check with an attorney or other investment professional.
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