1031 exchange is also known as Starker exchange and it is a strategy used by investors in tax deferment. The real estate industry is no longer in a bubble as it was taken to be a decade ago and that is why many people who invested in it are opting to exchange some of what they own in this industry for properties located in different parts of the country which will bring in more cash. With many people in the dark on what 1031 Exchange is, only big-time investors are enjoying its benefits.
People who sell investment properties are not required to pay capital gain tax under section 1031 of the IRS Code provided they can demonstrate the money gotten from the sale was used to invest in another property along the same line. In simple terms, this can be taken as a swap. Nevertheless, there are a number of elements which ought to be demonstrated before this can be taken as true. 1031 exchange came into being first with the providence that the sell of your old property and investment in the new one took place within 24hours. This has dwindled in the modern times because many investors and buyers will want both properties.
Another type of this exchange involves the seller finding a new investment within 6 months. Many investors in the real estate world rely on delayed investment to get time to find the property of their choice in no rush. For people who own land that is worth less than they paid to buy it, selling might not give much but it is better than keeping it. On the other side, those who have land that has appreciated considerably will enjoy delayed exchange because they can get more properties from the returns of the sale.
Reverse exchange is another type of 1031 exchange and it means you first make the purchase but you will pay later. The only problem is that many lenders are reluctant to issue money for such an investment because your name cannot be on the title deed of the new as well as sold property. However, this problem can be solved by finding an LLC to take over ownership of the new property temporarily until the old one is sold. You may not always find a new property at the value of the old one. In such a case, take advantage of improvement exchange to keep payment of taxes out of question. The money that remains after the purchase goes towards construction of the property to increase value.