A like-kind exchange of personal or real property often comes with a lot of questions. These exchanges can be complex and confusing – especially for taxpayers who haven’t previously done a 1031 exchange. Here are a few of the most frequently asked questions about New York 1031 exchanges. If you have any additional questions about like-kind exchanges in New York, don’t hesitate to reach out to our qualified intermediaries – 877.373.1031.
What is a 1031 Exchange & Why Should I Do One?
A 1031 exchange is a method of tax deferral outlined in the Internal Revenue Code. It allows taxpayers to defer their capital gains taxes on the sale of real property so long as they move all of their sales proceeds into another like-kind property. This allows you to avoid a large tax hit and continue your investment into a bigger property – thus compounding your wealth over time.
What Types of Property Qualify for 1031 Exchange?
Another important thing to consider is whether or not your property even qualifies for 1031 exchange treatment. Not all property is considered eligible. First of all, your property needs to be held for business or investment purposes. Property that you have held primarily for your own personal use (like your family home or car) are exempted outright. Next, you have to have replacement property that is “like-kind” to your relinquished property.
What are the Requirements of a Typical 1031 Exchange?
All 1031 exchanges of real estate or personal property have to meet certain requirements to be considered valid. The first is the 180 day time period. You have 180 days in total to complete your like-kind exchange. That clock starts right after your sell your relinquished property. The first 45 days of that timeline are set aside for identifying replacement property. You also need to make sure your value, equity, and debt go up when you move your proceeds into your replacement property. Finally, it’s essential to avoid receiving any of the net proceeds from the sale of your relinquished property. Those funds need to be separated and moved directly into the new property.
For answers to more 1031 exchange FAQs, check out our 1031 videos.