Frequently asked questions about 1031 exchange

The 1031 exchange is quite a popular tax-deferment strategy that many real estate investors resort to. However, there are still many people who are reticent to engaging in such an exchange due to the fact that they do not know too much about what it actually implies. If you are interested in swapping your property for another one through the 1031 exchange, you should also do some research on the internet and select a DST company in order to obtain the best results. Here is a list of the most frequently asked questions related to 1031 exchange.

What is 1031 exchange actually?

This is the first question that pops up in people’s minds the moment they hear about 1031 exchange. It is worth mentioning that through this process, investors are able to defer paying their capital gains taxes after selling one of their investment properties on the condition that they use the profit gained to buy another similar property, which in the specialized vocabulary is called “like-kind” property. You should also know that there are four types of 1031 exchange available, from which you can choose the one that best fits you and those are: simultaneous, delayed, reverse and construction or improvement exchange.

How to do a 1031 exchange?

If you are interested in doing a 1031 exchange the right way, one of the most important aspects to take care of is to make sure the property you exchange yours for have similar value. One of the reasons why real estate investors like to resort to this strategy is because they are not restricted to any tax obligation while trading properties, but cash out and pay the taxes later on. This means that they can focus more on the aspects they are interested in related to the properties and deal with taxes afterwards.

How do I know if my property qualifies?

This is another important question people usually have related to 1031 exchange – they want to know whether their property qualifies for this type of transaction or not. Truth is any property that is used in productive or investment purposes in a business or trade can qualify for being exchanged for another like-kind property. It is important to mention that like-kind should be interpreted as being related to the nature of the investment property rather than its form.

Why is working with an intermediary important?

In 1031 exchange, it is highly important to work with a qualified middleman and not do the transaction on your own in order to benefit from the desired results. A qualified intermediary will facilitate the process and will make sure the entire documentation is in accordance with the local laws. For this reason, it is recommended to do some detailed research and look for a professional and experienced middleman to make sure the transaction is successful.

What is Delaware Statutory Trust?

The Delaware Statutory Trust, also known as DST, is a legally recognized trust that qualifies under Section 1031 and that is used in order to help investors defer tax exchange within a 1031 exchange if certain requirements are met.