Most people have an idea on what 1031 or like-kind exchange means: if you want to sell a property using this strategy, you would have to find a replacement property within no more than 45 days and eventually close the deal within 180 days. However, there is still a lot of misinformation and as a result, numerous myths related to this type of exchange have emerged in the past years. It is recommended to look for a professional and reliable 1031 exchange company on the internet if you want to benefit from the best results. Here are some of the most common myths that people should stop believing.
#1 – The 180-day rule does not include weekends or holidays
This is probably the most popular myth related to 1031 exchange – the fact that the 180 days period excludes weekends and holidays, when in fact it is not at all true. This mostly happens because people do not pay attention to all the important details when engaging in this type of exchange and because they do not ask enough questions about it. It is important to remember that the 180-day rule also includes those non-working days, so in case the 180 day is on a Sunday, you have to close the deal on the preceding Friday.
#2 – You defer all tax liability when engaging in 1031 exchange
This is another popular myth many people believe it is true, when in fact it is not. It is important to know that if there is any cash that is not spent when purchasing a replacement property via this type of exchange, it is called “boot” and it is entirely taxable. This boot is taxed considering the tax rates of federal capital gains, which are currently of 15%. What is more, you should know that exchangers should check to see if they owe any capital gain taxes in the state or country where the property they have bought is located.
#3 – Like-kind exchanges are available only in the case of developed properties
Last but not least, this is another quite common myth about 1031 exchange. Most people are on the opinion that like-kind exchanges are limited to developed properties or developed land, but it is important to note that vacant land also qualifies. For example, you can exchange a building for vacant land if you want, not to mention that both properties and land can be exchanged for other things that are defined under a specific state’s law as being real estate. However, it is mandatory to document yourself a lot before making any decision because the definition of what real estate is varies a lot from one state to another. In order to avoid any unpleasant situations from happening, you have to do some detailed research about this type of exchange.
Overall, these are some of the most popular myths that people have heard about 1031 and like-kind property exchange. You can make the process a lot easier if you choose to work with a professional company in this domain that knows exactly how to guide you to obtain the desired results.