1031 Exchange

1031 EXCHANGE

1031 Exchanges have been in existence since 1991. 1031 is a section of the U.S. Tax Code that allows you to sell your investment property, as long as it is not your personal residence, purchase a new investment property and defer your capital gains taxes from the old property to the new one.

Basically this means that you do not have to give the government a large portion of what you made on the sale. It gives you that extra money to buy a new replacement property. It is a way of holding onto your working capital as you build your real estate investment portfolio. 

There are some basic rules that have to be followed. Thousands of people take advantage of these exchanges and there are ample experts at most local levels to guide you through the process. Most real estate professionals are very familiar with 1031 exchanges and will assist you in locating a professional third party to hande the exchange. Some of the basics are:

Both the old property and the new property have to be held for investment.

There is a 45 day identification requirement. You have 45 days from the day you close the sale of your old property to come up with a list of properties you may want to purchase.

There is a 180 day purchase requirement. You have 180 days, after closing on the old property, to purchase a new one. You must buy one from your 45 day list.

You must use an independent third party to handle the full exchange and you cannot touch any of the monies between the sale of the old and the purchase of the new.

There is a title requirement. The tax return that has the Title for the old property must be the same as the one that takes Title to the new property.

You must reinvest all of the cash proceeds from your sale in this exchange. To defer all of your capital gains, you must buy a property of equal or higher value than the one you just sold.

If you are thinking about doing a 1031 exchange, we can help you. We can assist you in identifying your 45 day list of potential properties to buy. We can put you in touch with a local third party to handle your exchange. We can work with you on the entire transaction.

There are many national and local sources of information about 1031's. We urge you to study the subject and talk with your financial and tax advisors about the entire process.