1031 Exchange

In Real Estate, 1031 Exchanges can be one of the most difficult procedures to understand. Kathy Anderson, President of Lone Peak Business Solutions, has come up with a five step process that is easy to understand. This will help any and all Real Estate Investors and home owners, to better understand 1031 Exchanges and how to use them to their advantage.

SECTION 1031 REAL ESTATE EXCHANGE

Step One
Sell the property you are holding for rent or investment that you want to use in the exchange.

Step Two
Hire a Qualified Intermediary (a person approved by the IRS who handles the paper work and proceeds of the exchange) The QI will hold the proceeds until the new property is ready to be purchased.

Step Three
Identify the new property to be used in the exchange. This can be an existing building or a building under construction. It can also be up to three smaller properties. The property or properties must be valued more than the property you gave up. You have 45 days from the time you relinquish the old property to name the new one.

Step Four
Make arrangements to purchase the new property. Obtain the financing. If you want to get cash out, arrange with the loan officer to structure the loan to include the amount you want to take out.

Step Five
Take possession of the property. You have 180 days from the time you give up the old property to take possession of the new property. At the closing, the QI will give the money to the title company and it will go as a down payment. At this time, you will be able to pull out funds if you choose to. The proceeds from the property you gave up shows as being invested into the new property. The money you take out shows as proceeds from the loan. Loan proceeds are not taxable.

Important To Remember
The Exchange must be Real Estate for Real Estate.
If you pull out cash before you take possession of the new property, you must pay capital gains on that money.
For more 1-31 exchange details, contact a qualified intermediary.