Key #7 to Success in 1031 Exchanges – Intent

Nothing will be more frustrating than not having the proper paperwork when the Tax Man comes a’ knockin’

The Rule

The seventh and final key to a successful 1031 exchange is to recognize that both form and intent are critical to show that an exchange transaction qualifies for tax deferral under the Internal Revenue Code. Intent is measured on the date of the exchange by all the events that occur before and after the exchange. Facts and circumstances surrounding the exchange must demonstrate compliance with the requirements of a valid exchange, and must also show a good faith effort to act within the intent of the Code.

Documentation

This is simple, but very important key as many investors can follow all of the other 6 Keys and do everything correct to the letter of the law, but cannot prove objectively that they are trying to hold a property for 12 months or more as an investment. The key to all of this is documentation. Document all of the work you do on a house from repairs to rental listings to rent checks and receipts. Keep a “house journal”, if you will, so that when (not if) the IRS ever decides that you are that day’s lucky audit winner, you will be prepared to show your proper intent.

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Filed under 1031 exchange basics, 7 Keys to Success in 1031 Exchanges

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