If you want to sell a property in order to buy another one, they you may be worried that your funds will be subject to taxes, and you will not be able to use the entire sum to purchase a new one. You have the possibility to use the entire sum if you use the 1031 exchange. This strategy allows you to sell your property and acquire a new one through an exchange strategy, and in this way you will not have to pay any taxes. If you use it correctly you will have multiple benefits, because it is one of the most powerful methods to save money when investing in real estate market. For example, you may want to sell your apartment, because you want to buy a similar property but in another area. The 1031 will allow you use the entire capital for purchasing the new property, because it will defer taxes.
Determine what the transaction process implies
In case you are new to this area, then you should make sure you get in touch with a specialist to explain you what is 1031 tax deferred exchange and what the transaction process implies. You will have to determine together what the objectives of the action are and what strategy to use in order to get the best results from your transaction. It is important the expert to help you estimate the potential gains you will have if you use this strategy.
Make the purchase and sale agreement
The first step in the process implies making a purchase and sale agreement. This is the type of paperwork that establishes the terms of the deal. You will have to obtain the buyer’s consent and determine if they have any special demands. An expert should be the one who will help you transform the sale into an exchange action. For this you will need special documentation, and if you do not have knowledge in this domain you may not know what paperwork is needed.
Complete the process
When you decide that a 1031 exchange is the best option for you, you should get in touch with your attorney, accountant and real estate agent, and inform them on your decision. They will be the ones that will help you understand what the process implies and in case you need help, they will definitely be there for you. You will have to get in touch with a middleman, to help you close the deal, so make sure to notify them that you want to purchase a new property by using this technique. The attorney should be the one that helps you with the documents required by the exchange. The real estate agent has an important role, because they will find you the property you will acquire to replace your own. Make sure to respect the time required by the 1031 exchange, because other way your gain will be subject to taxes. You will have a period of 45 days to identify the property you want to use as a replacement for your own, so make sure you thoroughly check the real estate market.