ations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds t

If you have been in the real estate game long enough to have sold an investment property, there's a good chance you are familiar with a 1031 tax-deferred exchange. Like many other tax benefits granted by the IRS, a 1031 exchange is another means by which investors-in this case, real estate investors-can postpone the taxation of their capital gains. A 1031 tax exchange is a real estate transaction in which the proceeds of an investment property sale are reinvested into a "like-kind" asset, i.e. another investment property. If the exchange is handled correctly, and the replacement property is purchased within 180 days of the relinquished property's sale, the exchanger has no obligation to pay a capital gains tax on the reinvested funds.

While many investors may regard this as a substantial tax perk, a traditional 1031 property exchange might not hold the same appeal for the more adventurous or imaginative real estate entrepreneur. For example, suppose you wanted to reinvest your money in improvements for a fixer-upper property. What would your tax situation look like if you wanted to put the relinquished property's sale proceeds into a property of lesser value but with great potential? In these types of cases, knowing about the more advanced types of 1031 exchanges comes in handy. You, the investor, stands to benefit from what is known as a construction exchange.

In a construction exchange (sometimes referred to as an improvement exchange), the replacement property requires additional work to meet or exceed the value of the relinquished property. The investor may use part of the exchange proceeds from the relinquished property to fund these improvements and still reap the tax-deferred benefit. Construction must follow necessary exchange guidelines, which specifically involves a specific time frame. Within 45 days of closing on the initial property, the replacement like-kind asset must be identified, along with the construction plans. Moreover, the purchase and actual construction on the replacement property must meet exchange value requirements within 180 days. It is important to note that monies paid to a builder for renovations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds to

e is handled correctly, and the replacement property is purchased within 180 days of the relinquished property's sale, the exchanger has no obligation to pay a capital gains tax on the reinvested funds.

While many investors may regard this as a substantial tax perk, a traditional 1031 property exchange might not hold the same appeal for the more adventurous or imaginative real estate entrepreneur. For example, suppose you wanted to reinvest your money in improvements for a fixer-upper property. What would your tax situation look like if you wanted to put the relinquished property's sale proceeds into a property of lesser value but with great potential? In these types of cases, knowing about the more advanced types of 1031 exchanges comes in handy. You, the investor, stands to benefit from what is known as a construction exchange.

In a construction exchange (sometimes referred to as an improvement exchange), the replacement property requires additional work to meet or exceed the value of the relinquished property. The investor may use part of the exchange proceeds from the relinquished property to fund these improvements and still reap the tax-deferred benefit. Construction must follow necessary exchange guidelines, which specifically involves a specific time frame. Within 45 days of closing on the initial property, the replacement like-kind asset must be identified, along with the construction plans. Moreover, the purchase and actual construction on the replacement property must meet exchange value requirements within 180 days. It is important to note that monies paid to a builder for renovations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds t

ke if you wanted to put the relinquished property's sale proceeds into a property of lesser value but with great potential? In these types of cases, knowing about the more advanced types of 1031 exchanges comes in handy. You, the investor, stands to benefit from what is known as a construction exchange.

In a construction exchange (sometimes referred to as an improvement exchange), the replacement property requires additional work to meet or exceed the value of the relinquished property. The investor may use part of the exchange proceeds from the relinquished property to fund these improvements and still reap the tax-deferred benefit. Construction must follow necessary exchange guidelines, which specifically involves a specific time frame. Within 45 days of closing on the initial property, the replacement like-kind asset must be identified, along with the construction plans. Moreover, the purchase and actual construction on the replacement property must meet exchange value requirements within 180 days. It is important to note that monies paid to a builder for renovations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds t

ceeds from the relinquished property to fund these improvements and still reap the tax-deferred benefit. Construction must follow necessary exchange guidelines, which specifically involves a specific time frame. Within 45 days of closing on the initial property, the replacement like-kind asset must be identified, along with the construction plans. Moreover, the purchase and actual construction on the replacement property must meet exchange value requirements within 180 days. It is important to note that monies paid to a builder for renovations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds t

ations that will occur after 180 days do not qualify for 1031 tax exchange treatment, regardless of the date of payment. In essence, all equity from the sale must tangibly shift from the old property to the new within the stipulated time frame in order to avoid tax liability.

Similar to the traditional 1031 exchange, the potential tax benefits of the 1031 construction exchange are substantial. Still, this more complicated tax-deferred exchange can be risky. Failure to adhere to specific guidelines may subject your sales proceeds to taxation. In order to maximize benefits of your construction exchange while minimizing costs, it is imperative that you seek the expertise of an exchange professional with a successful track record. With proper guidance, a 1031 construction exchange can be expertly executed, and you will be able to fully protect the sales proceeds from your relinquished property.

Information for this article taken from: http://www.allstates1031.com