TAXES HELP THROUGH TYPES OF 1031 TAX EXCHANGES

2007-03-08 10:33:40

( Financial )



The government provides taxes help to taxpayers in the form of 1031 Tax Exchange. It is a provision under Internal Revenue Code deferring taxes on the exchange or sell and purchase of properties of the same kind. There are different types of exchanges designed as taxes help to taxpayers which can qualify for 1031 tax benefits.

Simultaneous Exchange

The sell of relinquished property happens at the same time the replacement property is purchased.

Delayed Exchange

Delayed exchange is the common type of exchange being practiced by taxpayers to avail of taxes help. It happens when there replacement property is purchased after some time the relinquished property is sold. However, treasury regulations set strict time limit for a delayed exchange to happen.

Built to Suit Exchange

Built to suit refers to improvement or construction done by taxpayers on the replacement property using the proceeds from the exchange stipulated in section 1031 of the Internal Revenue Code.

Reverse Exchange

Taxpayers do a reverse exchange when they purchase replacement properties before selling their relinquished properties. Internal Revenue Code, however, does not allow for a reverse exchange wherein the taxpayer owns both the relinquished and replacement properties. Thus, a parking entity known as Exchange Accommodation Titleholder or EAT which does the actual acquisition of the replacement property and holds it until the taxpayer finally sell the relinquished property. The taxpayer then purchases or exchanges the replacement property from EAT. The Internal Revenue Code requires that the parking period for the replacement property with the EAT is only 180 days.

Personal Property Exchange

The exchange of personal property for another kind of personal property is a type of exchange signifying that 1031 tax exchange is not limited to real properties.

Taxpayers must ensure that the exchange is valid in terms of qualifying property, proper purpose, like kind of property being exchange and the proper exchange requirement must be complied. 1031 tax exchanges is a form of taxes help to taxpayers which is provided prior to committing delinquency with tax payments. It’s a tax help which is pre-emptive in nature.


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