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1031 like-kind exchange misconceptions debunked

The 1031 like-kind exchange is largely considered the most ingenious real estate strategy. If you have never ever done a 1031 property exchange, then you’re completely oblivious to the fact that entrepreneurs use this strategy in order to defer capital gains tax. Thanks to the Section 1031 of the IRC, you can swap assets and, most importantly, make tremendous financial gain.  Real estate professionals have been doing 1031 exchanges since the 1920s, so this method isn’t exactly new. There are many misconceptions about 1031 like-kind exchanges. In this article, we’ll discuss the most common ones.

 

1.     You exchange a type of property with the same type of property

Owing to the Internal Revenue Code, you can swap properties and avoid specific tax issues. The 1031 DST exchange is also called a like-kind exchange. This type of transaction makes it possible for entrepreneurs to dispose of possessions and acquire new ones. Attention needs to be paid to the fact that you aren’t allowed to swap just any kind of property. As the name clearly suggests, the replacement property has to be “like-kind”. But what does that mean? It means that you need to find an asset that is similar in nature. The asset doesn’t have to be exactly the same. For instance, if you have an apartment building, you can swap it with a villa. The two are commercial properties, so there’s no problem.  

2.     An attorney can facilitate the 1031 like-kind exchange

When it comes to such a transaction, you can’t count on the help of a lawyer. If you want to successfully complete the real estate transaction, then you need to seek help from a Qualified Intermediary. A Qualified Intermediary, or a QA, is a person who handles the negotiation part. What is more, the professional takes hold of the funds resulting from the sale of the relinquished property, making sure that the regulations have been respected. It’s essential to use a Qualified Intermediary. 1031 DST transactions are of a complex nature and you can’t execute one by yourself.

3.     1031 like-kind exchanges are only for the big players

It’s commonly believed that 1031 like-kind exchanges are only for the big players, who have lots and lots of money. The truth is that any entrepreneur, regardless of whether big or small, can do this kind of real estate transaction. So, if you were thinking about making the move, you can go ahead. A reliable intermediary will want to work with you, so there’s no need to worry about that. Don’t waste any more time. If you want to grow a fortune, there’s no better time like the present to start. Determine your gain and proceed with the swap.

When it comes to swapping real estate property under the IRC Section 1031, you have to be well informed. The thing is that you shouldn’t believe everything you hear. Every piece of information that’s provided to you should be verified. You have the Internet, so you can’t really complain that you don’t have sources of information.


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