Don't Make The Identification of a 1031 Replacement Property Harder Than It Needs To Be

Don't Make The Identification of a 1031 Replacement Property Harder Than It Needs To Be - By: Trisha Coppley, Posted on: 2008-05-15

Making a 1031 tax exchange is not always a simple endeavor; there are a great many factors that need to be taken into account as one moves through the process, and many possible complications that may crop up. Fortunately, though, many of the risks involved in the 1031 process can be mitigated by way of foresight and preparation. One key step in the process that can be simplified considerably if the investor makes the necessary preparations beforehand is making an identification on a suitable replacement property.

By far the simplest way to make your identification is to be certain {conduct the closing on your chosen replacement property within 45 days of closing on your relinquished property's sale. If you are able to conduct your closing within this period, you will be considered to have identified the property by virtue of closing on its purchase. In this way, you are able to absolve yourself of the obligation to make your identification on paper.

Missing this deadline means you will be obligated to submit a written identification, which will inevitably make the process much more labor-intensive and complicated. It would be unfeasible within the scope of this brief article to discuss all of the legal convolutions that can come into play in the course of making a written identification, but here I will quickly discuss the 2 basic ways in which written identifications can work.

The first is the 3-property Rule, under which you you are allowed to identify properties of any value, however the properties you identify can't be more than three in number. Though The 3-property Rule, is simple in concept, in practice it is often hard to figure out whether a property constitutes one or several. As an example, if you were dealing with a property made up of several distinct parcels, you'd be forced to take into consideration factors such as whether the parcels are contiguous, and whether they are being sold under one purchase agreement or several different ones. Your second option, the Two-Hundred-Percent Rule, lets you identify any quantity of properties, however the values of the pieces of property you identify must not total up to more than 200 percent of your relinquished property's value.

Whichever rule you decide to make your written identification under, it is necessary to be cautious when identifying replacement properties in writing, as the result of an incorrect identification will likely be an invalidated exchange. This risk can fortunately be mitigated, or even bypassed entirely, with a bit of foresight. As an example, you can search for a suitable replacement property in anticipation of making a 1031 tax exchange, and, for added surety, you can draw up a purchase agreement as well. By doing this, you can make absolutely certain that you will be able to purchase your chosen replacement within the 45-day window of time, avoiding the needless hassle that results from missing this deadline. If, however, you find yourself in a situation in which you will not be able to close on your purchase within the forty-five-day time frame, do not hesitate to bring up any legal considerations with a qualified expert, as a wrong move may result in the invalidation of your exchange.

Article Source:- Directory Submission & Sexy Deepika Padukone

Maximize Your Tax Savings By Using A Reverse 1031 Exchange When Buying Or Selling Like Kind 1031 Exchange Real Estate. Visit www.Top1031Exchange.com To Learn More.

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