|
|
 |
| Homepage
> Tax > |
There are certain rules that must be followed
while carrying out the exchange under Section 1031 of IRS. The first
and the most important rule is that the assets that are going to be
exchanged must be of ?like kind.?Secondly, the sales proceeds of a
like-kind asset must be invested within 180 days of the sale, and
the like-kind property where the proceeds have to be reinvested must
be identified within forty-five days of the sale. It must be noted
here that the IRS is very strict in allowing extensions of this time
limit, so one must be prepared well in advance.
Under
the existing law, the IRS has classified real estate into four
categories: personal property (property held for personal use),
dealer property (property held for sale), investment property
(property held for investment) and business property (property held
for productive use in business or trade). The last two types
?investment and business property qualify for tax deferral under
Section 1031, the first two personal and dealer property do not
qualify for tax deferral under Section 1031.
Legally,
what the other party does with the property exchanged would not
affect your tax status. There are certain other legal provisions
that need to be explained in the context of like-kind property.
Under Section 1031, like kind refers mainly to the use of the
property. It is not concerned with the grade of the property. Only
those properties that are held inside the U.S. and its territories
qualify for exchange. No property held outside the U.S. or its
territories would qualify for exchange under Section 1031.
One must remember that 1031 Exchange should not be viewed and
utilized as a tax loophole because this section of the Internal
Revenue Code has been written by Congress. The aim of this provision
is to allow people to sell their properties and defer payment of
taxes on the gains arising from such transactions.
|
|
|
|
