The Section 1031 tax exchange procedure is one that should be begun with a certain amount of thought and planning; the process contains ample opportunity for the unwary real estate investor for costly errors. Taking this into consideration, you might be somewhat skittish regarding beginning the 1031 process without a certainty that you will be able to follow the process to its end. In all actuality, though, the perils of the 1031 process are not as unmanageable as they might, at first glance, appear.
Beginning the 1031 process isn't by any means a total commitment – as a matter of fact, many of the smartest property investors, when selling an investment property will start the process of a 1031 exchange just for the purpose of keeping their options open. This is because, if one begins on the path of a exchange, there are several chances to back out and simply sell the property, while starting out with the intention of selling outright removes altogether the option of a 1031 tax exchange.
There is actually no reason to worry about the possibility of having a change of heart in the course of an exchange. All you really have to do in order to keep your options open is to stay attentive to the deadlines involved in the process of an exchange, as they'll be the major determining factor of when you will have the opportunity to collect the money that would have been transferred to your replacement property had you gone through with the exchange.
After you close the sale of your relinquished property, the proceeds of the sale are transferred directly to your qualified intermediary. After this has happened, the the first chance you will have to take back your proceeds from your intermediary is after a forty-five day period, which is the deadline for having identified a suitable replacement property. If forty-five days come and go and you haven't identified a replacement property, the exchange will be terminated and you will be able to collect the money from the initial sale. If you have identified a replacement property prior to deciding that you do not want to go through with the exchange, just revoke the identification before the end of the forty-five day period, and the exchange will end.
If you are past this step in the process, the next opportunity you will have to retrieve your proceeds will be after another one-hundred-eighty days, which is the deadline for closing on the purchase of a replacement property. However, if your federal income tax return occurs prior to this deadline, you can shorten this time frame. Provided you do not ask for an extension on your return, you may, at this point, inform your intermediary the exchange has been terminated and collect your {proceeds.
In the end, it is always a good idea to be prepared for whatever contingencies might arise; starting the 1031 process when you are uncertain what the future may hold can, in fact, be a good way to keep both options open. As long as you make sure to keep aware of the deadlines involved in the process, you can have the freedom to back out of your exchange if your circumstances change. About
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Many Types Of Investment Property Qualify For A 1031 Tax Exchange. Be Sure To Consult With An Expert That Offers 1031 Exchange Services To Maximize Your Tax Savings. More Information Is Available At www.Top1031Exchange.com
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