1031 TAX DEFERRED EXCHANGES
“AN OVERVIEW OF SEVERAL REQUIREMENTS
FOR TAX DEFERRAL” 
WHAT IS IRC SECTION 1031?
Section 1031 of the Internal Revenue
Code allows an owner of investment property to
exchange property and defer paying federal and
state capital gain taxes (up to 15% Federal, and applicable state taxes)
if they purchase a “like-kind” property
following the rules and regulations of the Internal
Revenue Code. This allows investors to use all
of the sale proceeds to leverage into more valuable
real estate, increase cash flow, diversify into
other properties, reduce management or consolidate
holdings.
WHAT IS “LIKE-KIND”
PROPERTY?
There is some confusion regarding
what type of property qualifies for a 1031 tax
deferred exchange. The Internal Revenue Code Section
1031 states that “no gain or loss shall
be recognized on the exchange of property held
for productive use in a trade or business or for
investment if such property is exchanged solely
for property
of like kind which is to be held either for productive
use in a trade or business or for investment.”
“Like-kind” property can include,
but is not limited to, any of the following, provided
it is held for investment:
- Single Family Rental
- Duplex
- Apartment
- Commercial Property
- Raw Land
For example, raw land can be exchanged
for a single family rental, or apartments or a
commercial building. Properties can be exchanged
anywhere within the United States.
DOES AN EXCHANGE NEED TO BE SIMULTANEOUS?
No, contrary to what some property
owners envision, a 1031 tax deferred exchange
is rarely a two-party swap. Most exchanges are
delayed exchanges, whereby the Exchanger has 180
days between the sale of the relinquished property
and the closing of the replacement property. They
must identify the potential replacement property
(or properties) within 45 calendar days from closing
on the relinquished property.
WHEN IS A 1031 EXCHANGE APPLICABLE?
It is applicable whenever a property
owner intends to SELL any property that is not
their primary residence (and falls under the definition
of “like-kind”) and plans to BUY another
“like-kind” property within 180 calendar
days following the closing of the relinquished
property.
Paramount to any exchange is a competent
and experienced Qualified Intermediary. Asset
Preservation is the entity which structures, guides
and documents the exchange transaction from beginning
to end.
Compliments of Asset Preservation,
Incorporated National Headquarters 800-282-1031
Eastern Region Office 866-394-1031, apiexchange.com,
info@apiexchange.com A National IRC 1031 “Qualified
Intermediary” © 2006 Asset Preservation,
Inc. Asset Preservation, Inc. does not give
tax or legal advice. The information contained
herein should not be relied upon as a substitute
for tax or legal advice obtained from a competent
tax and/or legal advisor.
Terri and Guy work with many buyers
and sellers that are taking advantage of 1031
Exchanges. Many desert investment properties are
bought and sold using this tax deferral technique.
Click here for more
detailed 1031 Exchange Information
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