What are some common misconceptions about 1031 Exchanges?
Many still believe that you must swap properties. Although this was required in the original code, this is rarely done in present times. 1031 Exchanges now enable one to sell their property to someone totally unrelated to the person from whom they are purchasing their replacement.
Many believe only investors of large commercial properties can utilize the benefits of section 1031. The great thing about 1031 Exchanges is that it applies to all investment properties, large and small. It will work the same way for a corporation selling a large shopping center as it would for an individual selling a single-family home used as rental property in a vacation area.
Many believe you must acquire property of “similar use or service”. While 1031 Exchanges are also known as “like-kind” exchanges, “like-kind” simply applies to real property held for a business use or investment. Therefore, an investor may sell raw land and acquire a five-unit apartment building or sell a warehouse and acquire raw land. He can sell one property and acquire three or sell four and acquire one. Virtually any type of real property used for business or investment will qualify.
Many believe 1031 Exchanges are very complicated and not worth doing. The fact is that when working with a Qualified Intermediary who specializes in Section 1031 tax-deferred exchanges, the exchange process is very simple. The intermediary will keep you aware of your time deadlines and ensure you do everything in strict compliance with IRS regulations.