If you are in possession of real property that will provide you with a gain on the sale, you should evaluate whether a 1031 exchange is right for you. There are five different classes of taxes of property: property used in the trade or business of taxpayers, property being held for the purpose of selling to customers, property used as a primary residence, property used as a vacation home, and property held for investment.
1031 exchanges apply to both property held in the trade or business of a taxpayer and property held for investment, and in certain situations, property held as a vacation home. Bear in mind the following stipulations:
Terms of 1031 exchange
• Property held for immediate sale is not considered as an investment
• Business use can be defined as holding property for productive use in business or trade
• Property that is being retired from a prior “productive use” in business may qualify
There are many possible benefits of using a 1031 exchange, so long as you are clear on the best way to maximize your advantages.
Examples of benefits include:
• Owning multiple buildings instead of just one
• Gaining leverage
• Deferring the payment of capital gains taxes
• Relocating to a new area
• Consolidating or upgrading buildings
• Obtaining relief from property management
The real property that you sell as well as the real property that you buy have to be held for productive use in a trade or business or for investment purposes, and they need to be similar. In order to get the tax benefits, the proceeds from the sale must pass through a qualified intermediary and not through your own hands- even briefly. If the funds pass through your hands at any point, any and all cash proceeds you obtain can be taxed.
There are many different kinds of properties that can be exchanged in this manner. “Like kind” refers to properties that are similar in character or nature. Examples of popular like-kind properties may involve commercial properties, condos, raw land, rental homes, duplexes, or apartments. Non like-kind properties are primary residences, notes, partnership interests, stocks and bonds, property to be resold immediately, or developed lots held for the purposes of sale.
1031 exchanges in the first place:
You should never try to handle the funds associated with a 1031 exchange on your own. Doing so can eradicate the deferment of your capital gains tax and cause you to pay taxes, eliminating one of the major reasons that people seek out 1031 exchanges in the first place.
1. Comparative Market Analysis (CMA):
Before you say that you are overcharging, you need to build and present a basis for your assumptions. In almost every constituency, compare realistic, relevant, comparable housing and taxation. For example, if you find 5 or 6 homes that are similar in size, location, property, conditions, etc., and their estimated value differs in your home, then you have created an excellent initial basis for the appeal. If you have the ability to do it on your own, you will get the greatest benefit, but if you do not have it, or do not have the time or interest, contact a reputable company and handle it for you. In many cases, these companies will charge up to 50% of your savings, but remember, this is even better than what you paid, etc. Also, you will only be charged for receiving a reduced analysis and savings!
2. Show (or evaluate) what other people are paying in taxes:
When you identify other related assets, show how much less they can pay than you. This is what you have presented as your complaints.
3. Fill in the required form / documents:
Depending on your location, this process can be simple or complicated! In any case, you will have to get all the necessary forms and documents and fill them correctly. This is another reason why many people decide to use one of the companies providing this service.
It is your responsibility to pay your real estate taxes, no, you have to pay more than you paid right! If you feel that your neighbor has been unfairly taxed, follow the complaint or appeal process.