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Essential Information About
The Section 1031 Tax Deferred Property Exchange *
Section 1031 exchanges provide investors with one of the best tax strategies for preserving the value of an investment portfolio. By using an exchange, the investor is able to defer the recognition of capital gains taxes that would otherwise be incurred on the sale of investment property. To qualify as an exchange the relinquished and replacement properties must be qualified "like-kind" properties and the transaction must be structured as an exchange. The use of a Qualified Intermediary is highly recommended.
Investment Property
The Internal Revenue Service (IRS) requires the exchange to be like-kind, and it defines that as real estate for real estate. In other words, you do not need to find a duplex to exchange for a duplex. You are allowed to exchange a duplex for vacant land, or an office building for a warehouse, ten unit apartment building for a retail center. Real estate held for investment or used to produce income qualifies.
45-Day Rule & Identification Rules
IRS Code requires that you must identify a list of replacement properties within 45 days from the date of closing on the sale of the relinquished property. There are no extensions. Identifying the replacement property is critical. There are guidelines as to how many properties and/or how much the total value of the properties can be.
180-Day Rule
IRS Code requires that you must purchase the identified replacement property by the 180th day after the date of closing on the sale of the relinquished property.
Reinvestment Requirement - Equal or Greater Value Rule
The replacement property must be equal or greater in value than the relinquished property. All cash proceeds must be reinvested.
* This is not a legal document. Terms and summary are only to introduce language for a IRS Section 1031 Tax Deferred Property Exchange. Please seek the advice of a Qualified Intermediary for all specific requirements and "safe harbor" provisions.
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