How To Find The Perfect Replacement Property
Most people acquire replacement properties in a bid to increase their cash flows by deferring their taxes. Real estate investors have used the 1031 exchange for very many years. Real estate investors have the right to delay payment on their taxes from capital gains from the sale of property with a properly executed 1031 exchange. Though the law dictates that you have to pay property sale taxes immediately you sell investment or business property, you can go around this by getting replacement property.
You defer taxes because the law views this as more of an exchange rather than a sale. You benefit from tax deferring because the law assumes that you have nothing left to buy new property with after acquisition of replacement property. There are a number of things that do not qualify to be replacement properties such as stocks, certificates of trust, partnership interests and inventory property.
To enjoy tax deferment after the sale of property, you need to ensure that the replacement property you acquire is similar to the one you sell in terms of nature, class or character. Replacement property needs to be either greater in value or equal in value to the property you are disposing. In this article, we will be looking at how you can find the perfect replacement property.
Firstly, you need to have a lot of options. Do not focus on a single property because it could be bought by somebody else before you get the money to buy it yourself.
Ensure that you consider even options you may have not thought of before provided they ae similar to the property you want to sell.
Secondly, you have to ensure that you give yourself enough time. A lot of people think that finding the right replacement property is easy but this is far from the case. You should start looking for replacement property even before you sell your current property because there are strict timelines in the 1031 exchange that have to be adhered to.
To find the perfect replacement property, you have to ensure that you hire a number of trusted advisors. A team of advisors is important because they have connections you may lack and as such have a higher chance of getting replacement property faster. Your team should always have a financial planner. Always choose a financial planner who is experienced in 1031 exchanges for faster results. You can also hire a commercial real estate broker to help you acquire replacement properties since they have more connections in the world of commercial real estate. The most important tip for finding good replacement property is giving yourself time.