Making sense of figures in a tax form can be confusing if one’s mind is not adept at number-crunching. For tax whizzes who handle such things that involve much more analysis like investments and properties, it will add up sometime. A tax expert can explain how a 1031 exchange works, for example, in a simple language: it is a method of disposal of property and acquisition of another one without the burden of a capital gains tax.
Here are three other things a financial genius will tell you about 1031 exchanges. First, it deals with like-kind exchanges. This means, a personal property cannot be sold to buy business assets. Examples of qualified trades include, among others, land for an industrial building, or an office in exchange for a shopping center.
Second, the barter of properties can be delayed. It is not frequent that a prospective investor will be able to find a land or structure he likes at first scouting. When this happens, a person should be hired to virtually hold the proceeds from the first purchase, and later on use the money to pay for a replacement asset preferred by the first party.
Third, prospective replacement properties under 1031 exchanges can be multiple. The Internal Revenue Service says it can be as much as three, so long as one is closed within the prescribed period.