Basic Rules on 1031 Exchanges

Posted by Techyscouts | Posted on 06/10/2023
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  • A 1031 exchange is a means of swapping one property or building for another while avoiding capital gains taxes. In Los Angeles and Torrance, 1031s are so common that most people need to consult with a West LA 1031 exchange consultant or a Torrance 1031 exchange consultant.

    Michael Millea is one of the best consultants in the region and can help you regardless of in which city you live or want to swap property. You should review some of the most basic rules of a 1031 exchange before meeting with Mr. Millea.

    You Can Only Swap “Like for Like”

    You can’t swap a multi-tenant property for a business building or swap a single-family home for a multi-family property (e.g., condominiums or condos). It must be “like for like”, and this rule is quite strict. Single-family home for a single-family home, a commercial lot for a commercial lot, an empty lot for an empty lot, etc., is the rule. If you’re not sure you can swap a property you have for one you want, your West LA 1031 exchange consultant can help.

    The Sale Money Cannot Be in Your Possession Ever

    You will need an L.A. or Torrance 1031 exchange consultant involved with this process because the proceeds from the sale of your property cannot be in your possession at any o-ne time. They must be held in an escrow account by the proper third party. Otherwise, the 1031 isn’t a 1031 and the tax credit becomes null and void.

    The transfer of funds from your consultant acting as the escrow agent to the purchase of the next property ensures that you receive the full benefit of doing 1031. Additionally, the agent may be able to negotiate a better price on the property you want, but the remaining funds must remain in escrow. Using these funds to improve the property may be allowed, but you’ll have to ask your agent/consultant.

    You Have 45 Days to Make the Exchange

    1031 is risky sometimes, especially if more than one buyer is interested in the same property as you. From the sale of one property to the purchase of another you only have 45 days to complete the exchange. Again, failure to comply with this 1031 rule makes the exchange null and void.
    If you lose out on buying the property you want, make sure you have a backup property in mind. Otherwise, you lose the property you held, and you have nothing to show for it trying to exchange on a property you couldn’t get. It helps to hire Michael Millea’s firm before you attempt a sale of your property and the purchase of another. Contact us today!

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