Wolterman Law


Widely Misunderstood Notions Surrounding 1031 Like-Kind Exchanges
Thursday, February 7, 2019

In 1921, 1031 tax-deferred exchanges were introduced as part of the USA’s tax law. Years later, a large number of misconceptions still surrounds it even though tax-deferred exchanges are prevalent in real estate today.

While this system was introduced to encourage tax savings, the deeply rooted misconceptions often end up derailing an exchange, or limiting the tax that could have been deferred.

The only way to steer clear of the pitfalls is to learn all about it. For that purpose, we are sharing the most common misconceptions surrounding 1031:

The properties have to be of the exact same kind for a like-kind exchange

The real condition here is for both the properties to be sold and purchased for productive purposes such as for trading, business, or investments. With that taken care of, properties exchanged can be of whatever type. For instance, a taxpayer can sell an industrial warehouse and exchange it for an apartment building.

As long as I have access to the money, I can exchange whenever I want, even after the closing

This misconception gets many people in trouble when they belatedly realize that they no longer can benefit from the exchange after the closing.

No matter how you look at it, once you have sold the property, and have the means to access the proceeds, the exchange has already invalidated it. Once the deal is closed, the boat has already sailed. There’s an entire procedure that requires an exchange agreement, assignment of the contract as well as notice of that assignment prior to the sale.

Upon terminating the exchange and paying the tax in full, I’ll get my exchange funds at any time

We don’t blame anyone for this misconception since it makes complete sense, yet the regulations state otherwise. The only condition where you get the funds back is when you fail to find an exchange property within 45 days of the sale of the relinquished property.

There are some other conditions that allow the taxpayers to receive their funds. Unless those conditions are met, the return of funds is not always a guarantee.

My vacation property is a perfect chance for me to avail the 1031 exchange upon selling it

If you’ve had that planned all along then, we are sorry to burst your bubble, but that’s not possible, or hardly possible. Properties for personal use are not applicable for 1031 exchange. Even if that vacation home has been rented a few times, it will still not fall under the exchange regulation.

If you are still all confused by somewhat tricky regulations surrounding 1031 like-kind exchange or have been hearing about it for the first time, seek legal guidance. In fact, legal guidance would be the wisest act on your behalf if your trade is selling and buying properties.

Blog | Wolterman Law Office LPA
Subscribe To Our Blog

Blog Categories

  • General Interest
    • 02/07/2019 - Widely Misunderstood Notions S
    • 01/03/2019 - No Matter How Old You Are, Est
    • 12/06/2018 - Everything You Need To Know Ab
    • 11/08/2018 - Why one should hire an estate
    • 10/11/2018 - Tax Reform Legislation 2017: C
    • 09/13/2018 - The Difference Between Tax Avo
    • 08/16/2018 - When you might need an attorne
    • 07/19/2018 - Why Hiring a Lawyer is Always
    • 07/16/2018 - 2018 Hope for the Future Schol
    • 06/21/2018 - 5 Reasons for Hiring a Persona
    • 05/24/2018 - 5 Qualities That Make a Law Fi
    • 04/19/2018 - Everything to Know If Your Med
    • 03/21/2018 - 5 Times You Should Think About
    • 02/15/2018 - 3 Reasons Why You Should Hire
    • 01/18/2018 - Why is It Important to Have a
    • 08/02/2017 - 3 Ways to Invest in Real Estat
    • 07/02/2017 - Estate Planning for the Young,
    • 06/02/2017 - Benefits of a Non-Disclosure A
    • 05/02/2017 - Easements 101 – What Exactly I
    • 03/29/2017 - Choosing Commercial vs Residen
    • 12/03/2016 - Happy Holidays!
    • 11/30/2016 - What is a Non-Disclosure Agree
    • 10/18/2016 - Strategies for Handling a Tax
    • 09/23/2016 - Real Estate Law: The Legal Asp
    • 08/14/2016 - Questions to Ask Your Business
    • 07/14/2016 - Starting a Business? You’ll Ne
    • 06/16/2016 - Estate Planning Primer
    • 05/12/2016 - The Basic Differences Between
    • 04/15/2016 - Monday is Tax Day: What to Do
    • 03/16/2016 - Small Business Owners and Comm
    • 02/15/2016 - Business Law: Guidelines for S
    • 10/27/2015 - Top Legal Dramas Roundup
    • 09/10/2015 - More Outlandish Tax Deductions
    • 08/19/2015 - Why it’s Necessary to Have a W
    • 07/10/2015 - A Part of Real Estate Symbolis
    • 06/15/2015 - Offbeat Tax Deductions and Tax
    • 05/21/2015 - Bizarre Estate Planning Outcom
    • 04/07/2015 - The Ins and Outs of Being a Ta
    • 03/11/2015 - More on What We Do

© 2021. WOLTERMAN LAW OFFICE. All Rights Reserved 
Disclaimer | Privacy Policy

Like us on Facebook Follow us on Twitter Follow us on LinkedInBlog

Wolterman Law Office LPA

Wolterman Law Office LPA provides legal counsel for clients in Hamilton County, Warren County, Clermont County and Butler County in Southwest Ohio, including communities such as Loveland, Cincinnati, Mason, West Chester, Blue Ash and Milford.

434 W Loveland Ave
Loveland, OH 45140

Phone: 513-488-1135
Fax: 513-322-4557

Steven Richard WoltermanReviewsout of 1 review  Review us on Google