Commercial Investment Properties
Understanding the 1031 Tax Exchange can be very beneficial to you
if you plan on relocating, or moving. However, the guidelines of
this great offer are rarely understood, and knowing the limitations
and exceptions of this magnificent offer can save you an abundance
of cash and help you avoid taxes all together.
The 1031 Tax Exchange Plan allows you to relocate and avoid taxes
by relocating your funds to a secure bank account. Once inside this
account your money cannot be touched for a period of 45 days. During
this period Diversification, Consolidation, Leveraging and Relocation
are all possibilities while under the 1031 Tax Exchange, during
this time you will not be penalized for recapture or capital gains.
One of the most emphasized rule under the 1031 Tax Exchange is that
the properties exchanged must be of Like-Kind of the same quality
An example of this rule would be if a property owner acting under
the 1031 Tax Exchange plan was to acquire a property with a lease
that does not require management. However if the proper is not of
Like-Kind the consequences are a Mortgage or Cash Boot. The best
way to avoid a Mortgage or Cash Boot is to bring cash to the properties
closing, as a way of covering the losses for a relinquished property,
or trade for a property of higher value.
When the transactions take place, there must be a Qualified Intermediary
to ensure that the exchange meets the 1031 Tax Exchange requirements.
The Intermediary must have received a written document describing
the aspects and value of the property. One of the 1031 Tax Exchange
Rules is that the property you are purchasing is of equal or greater
value that the previous owned property.
Three rules have been set in place to prioritize the goal of selecting
a new property. These rules are the Three Proper Rule, the 200 percent
rule or the 95 percent rule. These three rules are imperative to
follow or the property cannot be purchased.
Transactions that fall under the 1031 Tax Exchange are Reverse Exchange,
Exchange, Improvement Exchange, Simultaneous Exchange, Personal
Property and a Delayed Exchange. These are common transactions and
are well within bounds for the 1031 Tax Exchange.
To end the exchange the person or entity that began the transaction
must be the one to close the exchange. However, after profits have
been placed within a secure bank account you have a following of
45 days to find and close on another qualified property. The bank
account that secures the profits during these 45 days cannot be
a personal investor’s personal account, if so, the exchange will
be disqualified. If you cannot find and close on a property within
45 days, you must wait a full 180 days until you can require your
A triple Net is known as a NNN and is more frequently referred to
as an Equity investment other than a cash flow investment. With
the correct understanding these Commercial NNN Properties can be
beneficial to you. An NNN is finding a tenant to pay for all three
nets of a property, these include; real estate taxes, maintenance
and insurance. By doing so the tenant then becomes responsible for
all the costs of maintenance, purchases and repairs.
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