Expensive 1031 Tax Mistakes-Part 1

Perhaps the biggest benefit of a 1031 exchange is that you have the advantage of deferring your capital gains taxes. Be aware, though, that some big tax blunders could end up costing you. This is one reason why it’s so crucial to identify the right person to help you with your 1031 exchange. This person is known as a qualified Intermediary. Don’t hesitate to vet the person you’re considering to ensure that he or she is professional and has experience in this field. 

Mistake #1: Replacement Property Overpayment If you tell a broker that you’re looking for a replacement property, this could signal that the price of the property could go up because of the strict timelines associated with 1031 exchanges. 

Mistake #2: Selecting an Inexperienced Qualified Intermediary A separate account should be used with your qualified intermediary so that funds can only be released with your signature. The qualified intermediary should have an established reputation, too. 

Mistake #3: Buying a Property That Isn’t In Your Best Interests Don’t buy a property just because you’re hoping to do a 1031 exchange. It needs to fit into your overall business or rental portfolio, so don’t hurry to move something forward without careful consideration. Although the timing of all your moves in a 1031 exchange are important, it’s not worth rushing the entire experience and buying a property you do not need or even want. 

Mistake #4: Setting Up the Exchange Improperly Remember that your exchange is a real estate transaction, but it’s also a tax transaction, too. If you end up making mistakes on the exchange, you might still own the property and therefore have achieved success with it as a real estate exchange, but you could end up with tax consequences. Make sure someone has reviewed all the steps of your exchange and that you’ve consulted with an expert qualified intermediary, too. This is not a time to ignore the details. 

Mistake #5: Bad Financial Statements The 1031 exchange requires formality, and it’s not good if you make a mistake. In fact, you could be dealing with repercussions if you do not follow the rules exactly. Show all the correct information on your closing statement and review it twice to make sure you have avoided any mistakes. Doing your research and knowing what to avoid is the best policy when it comes to 1031 exchanges. Don’t hesitate to get help from an experienced qualified intermediary company . http://www.qualifiedintermediary.net/