1031 Exchange Loan Rules

1031 Exchange loan rules unnecessary cause a lot of confusion. People who are unfamiliar with the process usually have misconceptions about what it is and what it isn’t. That’s a real shame, because this simple tax law is great for real estate property investors. If you’ve not heard of a 1031 exchange or have encountered the term, you probably have a few questions. So, let’s look at the basics of 1031 exchange rules.

1031 Exchange Loan Rules

Okay, so a 1031 exchange gets its name from the United States tax code. Most of us are familiar with other provisions, like the 401(k) or 403(b) -- both of which relate to retirement investing. But, a 1031 exchange is all about real estate. And, it provides some great benefits to property owners.

Also called a like-kind exchange, this procedure is used for its big time tax advantage and other benefits. However, there is often confusion about how it actually works.

The purpose of a 1031 exchange is to “swap” one property for another without triggering a tax bill. But, to avoid paying taxes prematurely, property owners can use a 1031 exchange. So, here are the fundamentals of the 1031 exchange rules:

●      The existing property must meet qualification standards. The property you now own must meet certain criteria. But, don’t worry, most investment properties qualify. While you can’t use a 1031 exchange for your own personal residence, land under development, or fixer-uppers, most other properties meet the standards.
●      The replacement property must be titled in the same way. Another 1031 exchange rule is that the replacement property must be titled in the same way the existing property is titled. The titling must match to make it eligible.
●      The replacement property must also be like the current one. Here’s where most of the confusion comes into play. The replacement property must be “like-kind.” Now, that doesn’t mean it has to be the same. Because, you’re simply trading one investment for another. Put a different way, you can swap out a rental house or apartment building for a strip mall.


As you can see, the 1031 exchange rules are fairly straightforward. But, the language the IRS uses causes a lot of undue confusion. When done correctly, you simply change out one type of property for another and escape paying taxes on that particular transaction. It just allows your investment to grow in a tax-deferred status for the time being and until you actually sell it off. Article courtesy of Proactive Lending Group in San Antonio Tx. Your choice for 1031 exchange loans in San Antonio.

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