A forward exchange is the most commonly used type of 1031 exchange. Learn more about the benefits of a 1031 exchange below and reach out to a Mankato 1031 exchange professional at 612.643.1031.
1031 Exchange Explained
Let’s start with a simple explanation of a 1031 exchange. Section 1031, as laid out in the Internal Revenue Code, is a tax-deferral strategy available to all taxpayers selling property within the United States. Essentially, a 1031 exchange allows you to take the sales proceeds that would typically go to the government in capital gains taxes, and reinvest that capital into another property. Here’s a simple breakdown of the process:
- You sell a piece of property (known as the relinquished property).
- You identify new replacement property
- You close on that new replacement property and move all of your net proceeds into that new property.
That makes the 1031 process seem exceedingly simple, but there are numerous rules and regulations that you have to abide by in order complete a successful exchange. For example, all exchanges have to be between like-kind property, and must be completed within the 45 day and 180 day time frames. More importantly, you have to ensure that you are insulating yourself from receiving the net proceeds after the sale of your relinquished property. Savvy taxpayers hire a local 1031 exchange facilitator, or qualified intermediary, to arrange all aspect of the exchange, and keep the net proceeds in a segregated account during the process.
Personal Property Exchanges
In addition to real estate, you can also exchange various forms of personal property (also known as chattel), such as:
- Artwork
- Gold, Silver & Precious Metals
- Business Equipment
- Fleets of Vehicles
- Aircraft
The same time periods and regulations apply to these types of exchanges. However, the “like-kind” rule is a lot more complex when it comes to personal property. With real estate, most real estate is considered like-kind. But all personal property is not considered like-kind in the same way. The definition is a lot narrower. You can exchange a fleet of cars in North Mankato for another fleet of cars in St. Peter, but you could not exchange that fleet of cars for an airplane.
Get Help with Your Mankato 1031 Exchange
Many people have heard of 1031 exchanges but are concerned about going through with one because they don’t want to end up with a failed exchange. A qualified intermediary can make sure you have all of your bases covered and that your exchange is successful. Start your Mankato 1031 exchange today by picking up the phone and calling one of our experienced Minnesota qualified intermediaries – 612.643.1031.
