The IRS is very strict when it comes to the applications of rules that govern 1031 exchanges. Each year many proposed exchanges fail as many investors fails to reach some requirements that are set in the code. The main mistake made by many investors is the identification of the replacement property. To avoid making any mistake as an investor when categorising 1031 exchange properties, there are some things you should be keen to undertake. Many details should be put in place when categorising exchange properties. Without understanding the requirements for identification of exchange property it is very likely the planned exchange may be jeopardised.
Factors to Look At
Exchange properties have set rules that are supposed to adhere to strictly. Many investment replacement properties have their rule set in place and the person to identify the exchange properties is the investor.Many investors follow the rule. The three identification property rule gives an opportunity to an investor to identify three exchange properties in which they can pick all of them or either one or two properties.
Any investor is allowed to categorise the exchange properties of their choice. An investor should not identify a property that is more than 200% of the capitulated properties. The 95 percent rule allows the investor to identify exchange properties of over 200 percent of relinquished property but should acquire not less than 95 percent of the value of the acknowledged property.
The manner of the replacement property is another thing to consider. All the details about the exchange properly should be written down well, and the investors should be the one signing the documents.Moreover, the property should be described unambiguously. The address, location and other important details should be properly described and recorded on the documents properly. Some of the investors tend to obtain properties all together while others tend to have only some shares on the property.
The right person is the one to be provided with information. The person who the properties is being transferred too is supposed to provide detailed information to the other person who is to acquire the replacement property. All the involved people in the exchange process should be properly identified. All the documents should be provided and given only to the right people according to the rules and regulations. The best person who can handle all the exchange property documents should be a recognized and qualified intermediary.
The replacement property is the one identified by the investor when looking for property replacement. There are many set rules and regulation put in place by the IRS, and all of them are required to be followed as stated for a planned exchange to happen.
What to Know
To find the best 1013 exchange property firm you can visit their websites online.