So you are finally ready to sell your old investment or business property and invest in something new. But you really don’t want to have to share the money you have made with the taxman who is going to want to collect his cut.

There is a way to avoid this. Thanks to the US Internal Revenue Code’s, section 1031 laws - investors and business owners can indefinitely defer capital gains taxes on the exchange of properties similar to the one that is being sold. Section 1031 exchange allows you to forego the payment of taxes on the sale of your investment property or business property - as long as you use the money from the sale to buy another property of equal or greater value.

The Benefits of the 1031 Exchange Law:

A) An investor can defer his/her capital gains taxes that they would otherwise have when selling a property.

B) The elimination of taxes puts more money in the owner’s pockets and allows them to invest in more investment property.

The Section 1031 law does’nt include: Loans, Stocks, Bonds, Partnership Interest, Personal Residences, Certificates of Trust

…The good thing is that the 1031 Tax Exchange Law states that you don’t necessarily have to exchange or trade your property for an exact match, in order to avoid from having to pay taxes. You can use the money you make from the sale of your investment-property to “upgrade” to another property of equal or greater value.

Here are a few things you need to be sure of before conducting a 1031 Tax Exchange:

A) The net sale price of the property you are buying must be equal or greater than to that of the property you were giving up.

B) The profits from the property you are selling or giving up must be used to purchase the new property you want to get.

C) Now the investment property you replace your old property with must be like-kind. An example of this is when your old property is used as an investment property or in a business - then property you are replacing it with needs to be replaced with another like-kind property.

Once you’ve made the necessary arrangements, you may start the process of “exchanging” your investment property.

1. First you have to select some one who can do paper work and know about the 1031 tax deferred exchange.

2. Selling your investment property to a buyer that wants to buy it means you will also need to let them know that you are utilizing a 1031 exchange.

3. Within 45 days or less identify your replacement property.

4. It’s now required that you choose your replacement property within the allotted 180 days.

The 1031 tax exchange process may take some time, so be patient and rest assured you will benefit from it in the end.

Many investors make the mistake of selling their business or investment property and end up having to pay thousands of dollars to the government in capital gains taxes. They may not be aware of the tax laws in effect that provide them with the opportunity to retain their capital gains taxes on the sale of their business or investment property.

The taxes you would normally need to pay on the sale of an investment property can be deferred (if not eliminated entirely) with this law. The money that is made on the sale of your business or investment property, must also be used only to purchase another “like-kind. By taking advantage of the 1031 exchange law you can save more money which in turns allows you to put more money into your property and or even buy a property you would never been able to afford if you had to pay taxes.

The 1031 Exchange provision has saved investors millions and millions of dollars, and it is well worth your time to explore the benefits of it for yourself. To start reaping these financial rewards, you much follow some procedures first.

First of all, you are well advised to choose professional qualified intermediary (also known as a “QI”) with a good track record. Dealing exclusively with doing 1031 exchanges, a Qualified Intermediary is an expert with the facilitation of such a deal. The Q.I. opts into a legally binding agreement to change the transaction from a “Sale” to an “Exchange” and transfers the old property that you are giving up, takes the left over proceeds, and uses them to transfer the replacement-property over to you.

To qualify for your exchange, you will need to follow these rules:

1. Firstly, the investment property that you are replacing must have been used for investment purposes or use in a trade or business and must be “like-kind” (i.e. US real estate for other US real state).

2. 2nd, if you haven’t yet done so, you must clearly identify your replacement property in writing to your Q.I. it within forty five days. You must close the sale on the replacement property within one hundred and eighty days.

3. To defer your capital gains taxes, all of the proceeds from the sale of the first property must be used to purchase your new replacement property.

Follow these 1031 rules and you will be in the best position to faciliate your exchange. The procedure is simple enough but even if the path seems a little complicated from time to time, it will be well worth it with the money you will save. Do something good for yourself by retaining your capital gains with a 1031 Tax Exchange!