Selling An Investment Property? Keep Your Options Open With A 1031 Tax Exchange

2008-06-21 Word Count: 557 Category: Taxes

The Section 1031 tax exchange process is one that is best ventured into with a certain amount of planning and foresight; it contains ample opportunity for the unwary real estate investor for costly errors. Keeping this in mind, you might be skittish about beginning the 1031 exchange process without being certain that you'll be able to follow it to completion. In all actuality, however, the perils of beginning the 1031 process do not have to be as intimidating as they might, at first, seem.

Beginning the 1031 process isn't in any way a permanent commitment – as a matter of fact, many smart real estate investors, when selling a piece of property will begin the process of a 1031 exchange just for the purpose of leaving the option of exchanging open. This is because, if one begins on the path of a 1031 exchange, there exist several chances to back out and simply sell the property, while starting out with the intention of selling outright completely surrendering the option of a 1031 tax exchange.

There's actually no reason to worry about the possibility of having a change of heart during the course of an exchange. The only thing you really need to do in order to keep your options open is stay aware of the time frames involved in the process of an exchange, as they'll be the major determining factor of when you'll have the chance to receive the proceeds that would have been put towards your 1031 replacement property had you gone through with the exchange.

After you close your relinquished property's sale, the proceeds are transferred straight to your qualified intermediary. After this has happened, the the first opportunity you will have to take back your proceeds from the intermediary is at the end of the ensuing forty-five days, in which time you are supposed to have identified a suitable 1031 replacement property. If forty-five days have come and gone without your having identified a replacement property, the 1031 exchange will automatically be terminated and you'll be able to receive your proceeds. If you have identified a replacement property before deciding that you would like to terminate the exchange, just revoke that identification before the forty-five days have passed, and the result will be the same.

If you are past this step in the 1031 process, the next opportunity to collect your 1031 proceeds will be one-hundred-eighty days from the end of the forty-five day period, the deadline for closing on the purchase of a 1031 replacement property. However, if your tax return occurs before this deadline, you can shorten this waiting period. As long as you do not request an extension on your return, you may, at this point, tell your intermediary the exchange is over and receive your {proceeds.

In the end, it's always a good idea to be prepared for any circumstances that might arise; beginning a 1031 exchange when you are unsure what the future may hold can, in fact, be a good way to keep both options available. Provided that you take note of the time frames involved in the 1031 exchange process, you are at liberty to change your mind regarding the exchange in the event that there is a change in your circumstances.

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Section 1031 Exchange (Of The IRC) States That Property Investors Can Use A 1031 Property Exchange When Selling And Buying Like Kind Investment Property. To Find Out More Visit www.Top1031Exchange.com