The Trick To Easy 1031 Property Identification
By: Trisha Coppley
Conducting a 1031 tax exchange isn't always an easy endeavor; there are many rules, restrictions, and nuances that must be taken into consideration as one moves through the process, and many possible obstacles that may crop up. Fortunately, though, most of these obstacles can be avoided by forethought and planning. A step in the process that can be greatly simplified if the taxpayer makes the necessary preparations beforehand is making an identification on a piece of replacement property.
The absolute easiest way to make your identification is to make sure {to close on your chosen replacement property within the forty-five day period after closing on your relinquished property's sale. If you are able to conduct your closing during this time frame, you'll be seen as having identified the property by virtue of closing on its purchase. In this manner, you are able to free yourself from the obligation to make an identification in writing.
Letting this deadline pass without closing on your purchase means that you'll be obligated to submit your identification in writing, which will inevitably make the process much more labor-intensive and complex. It would be impossible within the confines of this brief essay to cover all of the legal minutiae that you may have to consider in submitting an identification on paper, but here I will offer a brief overview of the 2 basic ways in which written identifications can work.
The first of these is the 3-property Rule, which indicates that you you are allowed to identify properties regardless of value, however they must not be more than three in number. Though this rule is easy enough on its face, in practice it is often difficult to figure out whether a replacement property comprises one or several . For example, if you were considering a piece of property made up of several parcels, you'd be forced to consider factors such as the location of the parcels, and whether they are being sold under 1 purchase agreement or several separate agreements. Your second option, the Two Hundred Percent Rule, lets you identify any quantity of replacement properties, however the values of the pieces of property you have identified cannot total up to greater than 200 percent of your relinquished property's value.
Whichever rule you choose, it is necessary to be wary when submitting identifications on paper, as an incorrect identification is likely to result in the invalidation of your exchange. This risk can, however, be mitigated, or even avoided completely, with a bit of planning. For example, you could search for a suitable replacement property in anticipation of a 1031 tax exchange, and, for additional surety, you can make a purchase agreement as well. By doing this, you can make absolutely certain that you'll be able to purchase your chosen replacement property within the 45-day window of time, avoiding the muss and fuss that results from missing this deadline. If, however, a circumstance arises in which you can see that you will be unable to purchase your replacement property within the 45-day window, do not be afraid to discuss any legal considerations or doubts with tax adviser or other legal expert, as a misstep may result in the invalidation of your exchange.
Article Source: http://www.ezarticles.info
|
