Sep 2, 2016

Posted by in Business tips

Simple mistakes that can compromise your 1031 exchange

For those who are not quite familiar with the terms, a 1031 exchange implies bringing together two investors that are interested in exchanging assets or properties that have nearly the same value. It is worth mentioning that when executed accordingly, a 1031 exchange can help the investors get rid of some high taxes that might affect their investments. Those who need more information about the process, the 1031 exchange properties that can fit this program or anything else they might be interested in should do some detailed online research. Here are some simple mistakes to avoid when engaging in such a property exchange.

They do not look for a qualified intermediary

When it comes to 1031 exchanges, it is recommended to look for a professional and qualified intermediary, which in most cases this is something people tend to overlook. Selecting the wrong middleman leads to spending more money during the exchange process, which means that your investments can be significantly affected. Make sure the one you select has experience in the domain and is a professional one.

They pay too much for replacement property

Another mistake that can compromise people’s investment goals is the fact that they tend to overpay for the replacement property. The moment a seller or a broker learns that you are interested in one of their properties, there are chances they will raise the price a bit. This is quite a common practice especially when the broker notices the investor is on a tight deadline. Experts recommend establishing your criteria and budget before actually making the transaction. Stick to those aspects the entire process, since this is the key to getting the perfect deal.

They tend to ignore the deadline

You should know that there is a period of 45 days from the moment you close the deal to forward all the necessary details related to the replacement property you are interested in to the middleman. These days also include holidays and weekends, so make sure you do not overlook this aspect either. Some people tend to ignore the deadline, thinking that they can work things out even after it expires, but they could not have been any more wrong, since if they do not finalize the deal after this period, they risk for the specific property to be sold to someone else.

They believe that 1031 exchange helps them get rid of taxes

Some people are on the opinion that 1031 exchange is the perfect method to swap properties without having to pay any taxes, but this is not true at all, since this program allows investors to defer taxes and not to eliminate them. People need to be extremely careful during the process because if the exchange is not properly performed, it can affect their budget by making them obliged to pay even higher taxes.

As you can see, these are only some of the most common mistakes people tend to make the moment they subject themselves to swap properties through the 1031 exchange program.