In today’s investment world, investors use a process called 1031 exchanges. These exchanges are designed to help reduce their tax burden when they buy and sell investment properties.
The 1031 exchange industry is alive and well in the US. It’s an industry that generates $7.8 billion in tax revenue and supports over 500,000 jobs.
Are you new to real estate investing in Arizona? If so, then read on.
You’ll find out more here on what 1031 exchanges in Phoenix are all about. You’ll learn how to recognize their benefits and how a real estate professional can help with this process.
What’s a 1031 Exchange?
A 1031 exchange lets investors sell a property and “trade” their profit from this sale to buy more investment property. A primary benefit of the “trade” is that sellers don’t pay capital gains tax on this sale.
The money never reaches their bank. All of the profits go towards buying more property.
A 1031 exchange Arizona timeline requires both property sellers and buyers to complete their transaction within 180 days of the initial sale to avoid a tax penalty.
Any sold property must have a higher or price than the purchased land. There shouldn’t be any funds exchanged or debt relief in order to avoid more taxes.
The 1031 exchange gets its name from the US Internal Revenue Code. This section states that these exchanges only apply to vacant land or commercial properties and not someone’s residence.
What’s a 1031 Tax Exchange Company?
1031 tax exchange companies facilitate this sale between the seller and buyer. This company will also buy new properties on the buyer’s behalf as well as sell someone’s current inventory. A 1031 tax exchange company in Arizona will hold the sale proceeds then transfers them to the seller’s next property transaction.
Section 1031 exchange rules prohibit 1031 companies from having a personal relationship with either sellers or buyers who are exchanging a property.
1031 exchange requirements also specify that neither a lawyer nor a broker can represent your transaction if they represented you on one of your other transactions within the last two years.
1031 Tax Exchange Company Services
There are a list services that a 1031 tax exchange company can provide. These companies can draft necessary transaction documents including escrow instructions or the arms-length affidavit for property buyers and sellers.
They routinely manage sale proceeds from the sold property and deposit them during the escrow period. They can also accept
the property title or deed for the replacement property.
A 1031 company can draft the report that describes the transaction for both the buyer and seller. 1031 tax exchange rules specify which details to include in this document.
They will also submit all tax forms that report the seller’s income received in the previous year. 1031 exchange companies prepare these forms to satisfy IRS guidelines.
Ready for 1031 Exchanges in Phoenix?
Do your homework before you call a company to represent your transaction. Study the 1031 exchange process and read up on all applicable IRS exchange rules. You can also ask your coworkers or friends for referrals to 1031 exchange experts.
Don’t hesitate to give us a call if you have any questions on 1031 exchanges in Phoenix. At Homeriver Group, we’ll show you some of the best places in Phoenix to invest. Let us help you protect your most valuable investment.