1031 EXCHANGE – An Excellent Way to Defer Your Taxes

According to Internal Revenue Code Section 1031, a properly structured 1031 exchange allows you to sell a property, to reinvest the earnings into a new property and put off all the capital gain taxes. As per Section 1031 of the United States Internal Revenue Code, a taxpayer may put off recollection of capital gains and associated federal income tax liability on the interchange of specific categories of property and this procedure is generally known as a 1031 Exchange . This is also referred to as a like-kind exchange or a Starker.


For some, this might be new to the ears. So, an in-depth detail of how this came to be is explained as an easy way to make your money work for you. As we investigate it, this seems entirely right as Exchange 1031 sanctions a precisely structured exchange allowing any investor to trade property and reinvest the profits in a brand-new property and to shelve all capital gain taxes. This involves any investor to do so as there is no complication or stepping into a foreign field compared to starting a new business.

Essential information for every seller

Paying the income or capital gain tax on the selloff deal of property can be optional. Perhaps the problem lies with the procedure being called an exchange, which in turn creates a lot of conflicting and would be much productive if this was re-labeled as a 1031 rollover as that is precisely what happens. The gain is rolled over to a new property. The number of times in which a person can rollover the gain and postpone tax is limitless.

Like-kind property

The old premises to be put up for sale and the new premises to be purchased being of like kind is the foundational condition for a 1031 exchange. This is in fact one of the most misapprehended notion involving 1031 exchange. Like-kind relates to the use of properties of which results in the old property along with the new property made to be reserved for investment or put into use in a swap. We might wonder if there are properties that will surely qualify for 1031 treatment, even if it is leased or not! The answer to that is Yes if it is an empty ground.

Furthermore, commercial properties are seemingly high on the scale of properties being purchased to be instantly converted into a rental home or sold to buy a condo. Numerous court cases are intending to regulate the separating line between being held for resale and investment. A person’s Intent to own the property seems to be the significant factor in determining the difference.

180 day purchase period

According to Section 1031, it is mandatory that the procuring and closing of new properties should occur by the 180th day of closing of the old property. The property that is to be procured should be among the properties listed on the 45-day identification list. Hence new property is not to be introduced after 45 days. These time frames run jointly, therefore when the 45 days are up the taxpayer is left with 135 days to close the deal.

Qualified intermediary

The sellers will not be able to access the cash while the swap is going on between selling their old property and purchasing their new property. The law abides that the taxpayer must use an independent third party. This third party is usually referred to as an exchange partner or intermediary. The party who serves as the intermediary cannot be someone with whom the taxpayer is related though family relationship or a business relationship now or two years prior. The interest of these funds is directly for the taxpayer as he is entitled to it and he must treat the investment as ordinary income during the period of escrow.

Title must be mirror image

Another mandatory requirement by Section 1031 is that the taxpayer listed on the old property should be the same taxpayer listed on the new property. Partnership interests won’t let the property be eligible for 1031 treatment.

Reinvest equal or greater amount

For 100% of the tax to be deferred, on the gain of property sold, the new property should value more than or equal to it. This does not just state that the new property must value more or identical to the one which is sold but also says that all the cash profits must be reinvested.

Engage our services for a profitable 1031 Exchange and defer Taxes

1031 Exchange enables your money to churn the maximum profit for you. However, the exchange process is extremely complex in nature, and it would be wise to seek guidance from expert professionals. We have extensive experience in handling highly profitable exchanges for our varied client base.

For consultation and assistance regarding 1031 exchange call – 888-993-2835 or email us at info@1031xchange.com.

Find a 1031 Exchange Expert in Your Area:

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”