General Tips

Swapping businesses can change your financial situation

Are you struggling with financial issues at the moment? Your business tends to reach bankruptcy because you have no idea how to manage it anymore? Well, even though you might’ve thought that there is no solution left, here’s your life savior – swapping properties. In the real estate world, there is a concept that can help many people get back on track. This concept is called a structured 1031 exchange. For people who are not familiar with real estate and property management in general, 1031 exchanges represent an opportunity to switch a property for another, while deferring taxes. Isn’t that convenient? This means that you can look for a property (commercial one) that has a similar value to your own business and propose an exchange. Here are the rules:

Swapping businesses can change your financial situation

How does a 1031 exchange work?

1031 exchanges, also called like-kind exchanges, represent an opportunity to swap an investment property for a completely different one, of similar value. A structured 1031 exchange can help a business owner reprofile without any additional costs involved (taxes). Through 1031, owners are deferring taxes, which is a major benefit for both parts. You can continue investing in the business you selected as a swap for your actual one, the purpose being regaining your financial stability. If you were simply tired of the domain you were working in, the simplest solution is to swap businesses and – implicitly – the domain. Say goodbye to depreciation recaptures or other expensive taxes you always encountered in your path.

How many types of 1031 exchange exist?

There are several types of 1031 exchanges, and they can vary considering the individual situation of each person. The most used ones are:

  • The simultaneous exchange

This type of 1031 exchange involves selling the initial property in the first place and buying the one you desire to swap with at the exact same time of the selling. It is the most common method of completing 1031 exchanges.

  • The delayed exchange

The delayed exchange includes a period of 180 days that is allowed for the 1031 initiator to find a replacement property. Firstly, the property is sold and the one that the owner desire to swap with should be identified in 45 days. The rest of the time is used for completing additional payments and documents. This is the most preferred type of exchange due to the 180-day window period.

  • The improvement exchange

This might be the best choice for people wanting to get back on track financially speaking. Construction exchanges refer to the possibility of upgrading a property so that it meets the similar value criteria. In such cases, the window period can be extended considering local law regulations.

  • The reverse exchange

Another popular type of 1031 exchange would be the reverse one. The property which will swap another one is purchased first. It is more complicated because it pressures the buyer to sell the initial property in a shorter amount of time. The new and the old property cannot be owned by the same person at the same time.