More and more people are finding it tougher to keep a hold of their money these days. It is troubling to see that some people lose some of their money needlessly as well by not understanding some of the tax laws that can shelter some of their money from being unduly taxed.

One of the biggest areas of trouble is in real estate, or real property. There are laws that allow people to shelter their money from being taxed if their intent is to reinvest the money gained from one sale of property into another like kind property. This exchange of property is called a 1031 exchange. While it can be very helpful, it must be done right in order to qualify and keep your money sheltered.

A 1031 tax exchange is the reinvestment of the money gained from the sale of one property to another like property for the same intention. For example, if you wanted to get out of one rental property into another, you could do that and avoid taxes because you really have not gained anything yet.

Another key aspect of a 1031 exchange that must be complied with is the time frame. If you want to do a 1031 exchange transaction, then you must identify the 1031 exchange property within 45 days from the close on the original property. Also, you will need to close the purchase of the new property within 180 days.

A 1031 exchange is not something that you can do by yourself. In order to qualify, you must use a qualified 1031 company to hold the money in the interim. The main reason for this is to make sure that the money is handles according to the laws. However, it is good to have a 3rd party as a witness anyways to make sure that all is okay with the IRS in how it is done.

However, it is possible for a person to have a gain and still complete a 1031 exchange. It is not advised most of the time, but it can be done. The gain in this case is often referred to as a boot. The boot must be reported and taxes paid on it.

To better understand what a boot it is, it is helpful to understand how this can come about, even without the intention of making this happen. For example, if the property that you invest is less than the property that you sold. Without anything to offset that, it becomes a gain, or a boot. It can also happen in the same case, but instead of cash, the debt is reduced

One of the hardest and most stressful parts of the 1031 exchange is finding the 1031 exchange property within the limited time frame of 45 days. Once that is done, the stress goes down significantly, but the close on that property needs to happen within 180 days of the closing of the other.

If you have never heard of a 1031 exchange or 1031 exchange property, but you purchase and sell property, then you had better learn some more so that you can save a lot of money on capital gains taxes.