A 1031 exchange, otherwise known as a like-kind exchange, is a way that property investors and business owners can defer their income tax regarding profits made when buying and selling properties. This can be an extremely lucrative way to flip properties and to maximize your progression in investment, and it's relatively easy to do.
However, to successfully engage in a 1031 exchange, you must make sure that you have followed all of the rules and regulations. The following are three things that you must do to ensure that you qualify for a like-kind exchange.
Make sure that you replace your property with a like-kind property
You can only benefit from a 1031 exchange if you can show that your replacement property is like-kind. This means that you must replace a rental property with another rental property, or a piece of land with another piece of land.
Show that you have qualified use of the property
You must be able to show that the properties being bought and sold are a part of your business. In other words, you cannot use personal property such as a family vacation home and benefit from a like-kind exchange.
Select a qualified intermediary
You must select a qualified intermediary who is assigned to the transactions before they close. This is necessary to do if you want to gain the tax-deferred benefits of a 1031 exchange.
If you want to benefit from tax deferments from capital gains on a property you are selling, you should learn more about how engaging in a 1031 exchange will benefit you and your business.