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Making a 1031 tax exchange isn't always a simple endeavor; there are many factors that must be duly considered during the course of the process, and myriad potential complications that may arise. The good news, however, is that many of these roadblocks can be avoided by foresight and preparation. A step in the 1031 process that can be greatly simplified provided that one does his homework at the outset is the identification of a suitable replacement property. By far the easiest approach to making an identification is to be sure {conduct the closing on the purchase of your replacement property within forty-five days of conducting closing on your relinquished property's sale. If you manage to conduct your closing within this period, you will be considered to have made your identification by virtue of the fact that you have conducted the closing. In this way, you can absolve yourself of the responsibility of making an identification on paper. Missing this deadline means you will be obligated to submit a written identification, which will make the process much more labor-intensive and complex. It would be impossible in the scope of this brief essay to discuss all of the legal minutiae that you may have to consider in the course of submitting an identification in writing, but here I will briefly discuss the 2 essential rules under which written identifications can work. The first is the ”Three-Property Rule,” which indicates you you are allowed to identify properties regardless of value, but they must not number more than 3 in total. While The ”Three-Property Rule,” is simple on its face, in practice it is often difficult to ascertain whether a replacement property comprises one or several discrete pieces of real estate. For example, if you were dealing with a piece of property made up of 3 or 4 distinct parcels, you'd be forced to consider factors such as the location of the parcels, and whether they are being sold under one purchase agreement or several separate ones. The second option, the 200% Rule, lets you identify an unlimited number of replacement properties, but the values of the properties you have identified must not add up to greater than 200 percent of the value of your relinquished property. Whichever rule you decide to make your written identification under, it is important to be cautious when submitting identifications on paper, as the result of an incorrect identification is an invalidated exchange. This hassle can fortunately be mitigated, or even avoided entirely, with a bit of forethought. For example, you could search for a suitable replacement property before even beginning the 1031 exchange, and, for additional surety, you can draw up a purchase agreement with the seller. In this way, you can rest assured that you will be able to purchase your replacement property within the 45-day time frame, thereby avoiding the needless hassle that comes with missing this deadline. If, however, a circumstance arises in which you can see that it will be impossible to close on your purchase within the 45-day time frame, don't hesitate to bring up any legal issues with a qualified expert, as a wrong move may result in the invalidation of your exchange.
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About the Author : Maximize Your Tax Savings By Using A Reverse 1031 Exchange When Buying Or Selling Like Kind 1031 Exchange Real Estate. Visit www.Top1031Exchange.com To Learn More.
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