One of the most common tax considerations in buying 1031 exchange properties is whether the replacement property will be taxable or not. While this is an important consideration, investors should remember that the replacement property must be like-kind to the original property. However, red-hot real estate markets may make finding a like-kind property difficult. For that reason, it is important to carefully evaluate all thepros and cons of buying a new property to avoid potential issues with taxes. Get to learn more at https://www.precisionglobalcorp.com/1031-exchange . While it's easy to understand the rules and the potential pitfalls, you must understand the basics of 1031 exchange properties to avoid a tax headache. First, identify your replacement property within 45 days of the sale of the original property. Note that these days are not considered business days. Second, the replacement property's market value cannot exceed 200% of the original. Once you've identified your replacement property, you should wait at least three years before making any closing decisions. The basis of the old property determines the basis of the replacement property. For example, Alice and Ben bought a duplex for $50,000 in 1994, took $10,000 in depreciation, and are now selling it for $100,000. They have found a condo that they want to buy and are ready to make the exchange. If the new condo is a better investment, they may choose to buy it as a replacement. The basis of the replacement property will then be higher than the base of the old. Click here learn more on to real estate projects portfolio management. A new property's basis is determined by the basis of the old one. As an example, say that Alice and Ben bought a duplex in 1994 for $50,000. They have taken $10,000 in depreciation on the duplex since then, and are now selling the duplex for a higher price. As the replacement property, they've bought a condominium and are happy with its value. In the end, they've left their children with an enormous portfolio. Identifying a replacement property should be the final step of the 1031 exchange process. If the replacement property isn't identical to the original, it can be difficult to determine whether it is similar in value to the original property. While it is possible to buy a new one that meets the criteria, it's important to identify the replacement property before making the exchange. This will help avoid the risk of being stuck with a property that's not right for you. As an investor, you can easily exchange your existing property for a new one without any problem. The difference between the two properties is the basis of the former one. A property that was worth $50,000 in 1994 will now have a much higher basis than a duplex that is worth $100 today. If you're selling your current home, you'll need to consider the value of the new property. The replacement property's market value must be less than 200% of the original property's value. Get a general overview of the topic here: https://en.wikipedia.org/wiki/Real_estate .
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