1031 Exchange Agreement Form In Bronx
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Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
How to Do a 1031 Exchange Choose a qualified intermediary to coordinate the exchange. Sell your current real estate property. You have 45 days to identify potential replacement properties. You have 180 days to close on a replacement property. File IRS Form 8824.
A 1031 Exchange allows for the deferral of capital gains tax by replacing property with one of like-kind and equal or greater value. This exchange operates within a strict timeline, requiring identification of potential replacement properties within 45 days and completion of the exchange within 180 days.
A Qualified Intermediary, or QI, is an independent third party to the transaction whose function is to prepare the documents necessary to create the exchange, as well as to act as the independent escrow agent for the exchange funds.
While an investor can choose which property to sell (exchange) and identify replacement properties, the investor/taxpayer may not control or have access to the funds in between those two events. For that reason, the use of a qualified intermediary is necessary.
A 1031 exchange does not obviate the need for a realtor. Quite to the contrary, in most cases an Exchanger has an even greater need for a realtor due to the time constraints placed on Exchangers.
After completing a 1031 exchange, you must report the transaction to the IRS using Form 8824 to maintain the transaction's tax-deferred status. You must file the form with your annual income tax return for the year in which the exchange was completed.
Under § 1031(f)(1), a taxpayer exchanging like-kind property with a related person cannot use the nonrecognition provisions of § 1031 if, within 2 years of the date of the last transfer, either the related person disposes of the relinquished property or the taxpayer disposes of the replacement property.
Lack of Liquidity- Exchanging properties continually can tie up funds in real estate, making it hard for an investor to access liquid capital if required. While real estate can be a profitable investment, it's not as liquid as some other assets.