Is a Tax Deferred Exchange a Good Fit?

Allowing money that is normally paid in tax to generate more money through deferral, perhaps ultimately paying under a lower tax bracket, is attractive. This is one of the primary reasons why individuals involved in real estate transactions consider using 1031 exchanges. You can defer your capital gains taxes using a 1031 exchange so long as you follow all of the rules set forth by the IRS. You will need to identify a replacement property within 45 days and close on that property within 180 days from the sale date of the initial property. It can be a good fit for you if you are intending to identify an appropriate replacement property sooner rather than later. Current capital gains due upon sale are significant including up to 25% on depreciation. This is yet another reason why 1031 exchanges are so attractive for real estate investors. The first key on a deferred exchange is that it must qualify. A possible error here of attempting to use for example, bonds or stocks can generate an immediate tax consequence. Make sure what you know what you are getting into before you engage with a  1031 exchange because following the rules can help you capitalize on deferred taxes while small mistakes might mean you end up paying taxes anyways. The second key to a tax deferred exchange is that no cash or proceeds can be held before the 1031 is fully complete. This is the main reason that you need to use a qualified intermediary to accept and apply funds on their behalf. These conditions command due diligence of the qualified intermediary who is involved in a transaction. This is particularly true even if they are well-backed and possess sufficient fidelity bond coverage. You need to hire someone who has experience in this field and can provide you references and proof that he or she has worked in this capacity before. Taking these steps and doing your own due diligence can go a long way towards success.