Challenges of 1031 exchanges you should know about

Posted by on Jun 21, 2017 in General News | Comments Off on Challenges of 1031 exchanges you should know about

Challenges of 1031 exchanges you should know about

You are looking to do a 1031 exchange into a Delaware Statutory Trust property. Know what? You are not the only one. More and more real estate investors opt for DST 1031 exchanges to preserve their capital. Eliminating the headaches of property management, defer paying capital gains taxes, and enhanced cash flow, are only some examples of benefits you enjoy by exchanging into a Delaware Statutory Trust.

However, you should know that using a DST services to complete is not as easy as it may seem. The procedures themselves are easy, but this does not mean that there are not challenges along the way. In this article, we will discuss about the most common issues and how you can overcome them, of course.

 

Challenge #1 Imposed timeframes

The Internal Revue Code rules leave no room for interpretation. You have to respect two very important timeframes when finalizing a like-kind exchange. If you do not respect the deadlines imposed by the IRC, then the 1031 exchange becomes null. Beginning with the closing of the relinquished property, you have 45 days to designate a replacement property (you can identify as many as 3) and 180 days to buy it.

What investors find most difficult to respect is the 45 deadline. Yes, finding a suitable asset is hard, but it is not impossible. If you do not have the time to search for a replacement property, have a private firm help you. What you have to remember is the fact that you have to act fast ad you need all the help you can get.

Challenge #2 The real estate property must be held for investment

Excluding a personal residence for another one is out of the question. The DST 1031 exchange is not for personal use, which means that you can only swap properties for investment purposes. The exchange property should be a property held for business use. what the IRS qualifies as personal use when it comes to real estate are houses, apartments, condominiums, and improvements relating to living accommodation.

What you can do is use your vacation home. Second homes used for rental purposes are regarded as investment properties, so they do qualify for the tax-deferred exchange. If you can meet the guidelines of the IRS, you can make the swap. So, what do you have to do? It is necessary to have owned the asset for at least 24 months prior to the exchange and have rented it for at least 14 days.

Challenge #3 Choosing a Qualified Intermediary

It is essential that you have a Qualified Intermediary. Sure, you can do things yourself, but this does not mean that you should. Go and find a Qualified Intermediary to help you with the proceedings. There are many things to take into consideration when choosing a middleperson. What you need to look or in a Qualified Intermediary is real estate experience. If the person does not have expertize, they will not be to handle the difficult exchanges. Another thing to look for is funds security. To be more precise, you need to be sure that your funds are safe.