how to do a 1031 exchangeThe IRS has provided certain guidelines in the form of 1031 Exchange Requirements. A tax payer needs to follow these requirements without any violations to enable claim of capital gains tax deferment benefits.

Some of these requirements are given below.

An exchange of properties that meets the requirements involves the sale of a qualifying property by a tax payer and then the purchase of another qualifying property by him/her. The property sold by the tax payer is known as the relinquished property and the one purchased is known as the replacement property.

The most important requirement is that both the qualifying properties exchanged be in the nature of US located real estate properties. Further, they should be held for productive use in business or in trade. Alternatively, they should be owned solely from the point of investment purpose. Further, second homes owned by tax payers and used as vacation homes are not allowed, although they may form an investment vehicle.

Properties used for residence by the tax payer or those held by dealers for sale purposes do not qualify. Transactions in stocks, bonds, securities, and interests in partnerships are not allowed

 

 

Michael Goh