Going through a 1031 exchange can be a great way to legitimately avoid being taxed when you sell one investment and buy another. This can have great financial benefits for real estate investors; however, it is vital that the terms are abided by in order to qualify.
Strictly speaking, you can only benefit from a 1031 exchange when you are buying and selling investment properties. Therefore, it cannot be applied to the primary family residence. However, in limited situations, it may be possible to benefit through a home that is sometimes used as a vacation residence. If you want to go through a 1031 exchange without an issue, it is a good idea to learn about some of the most common pitfalls.
Make sure that you don't exceed the closing time limit
You will have a time limit of 180 days to close on a new property after you have sold your old property. It is important that you are comfortably within this timeline so that you do not run the risk of exceeding it.
Remember that lowered liability is taxable
Even if you do not profit from the exchange, if you lower your mortgage through the process, this will count as earnings. This sum will be taxable.
Keep in mind the "like-kind" rule
The "like-kind" rule means that you have to buy similar property to what you sold, but this rule is surprisingly broad.
If you want to go through a 1031 exchange without issue in Florida, it is a good idea to learn more about the intricacies of the law.