The 1031 Exchange, Section 1.1031 was established in 1990 after the Internal Revenue Code finally decided on the rules for Deferred Exchanges. As one of the best kept secrets, 1031 Exchanges have become more and more popular as many real estate buyers and sellers have become aware of this method of deferring capital gain taxes on the sale of a property by re-investing the proceeds into like-kind property. The purpose of a 1031 Exchange offers significant tax advantages, however, to qualify; the 1031 Exchange must be done within specific guidelines stipulated by the Internal Revenue Code.

Like-kind property consists of real and personal property such as real estate, art, aircraft and boats, etc. The property being exchanged must be like-kind. For personal property to qualify, it must be depreciable and part of the daily operations of a trade or business.

1031 Exchange is ideal for anyone who will net a gain on the sale of real property that has been depreciated for tax purposes and/or has experienced appreciation in value.

Some Reasons to consider a 1031 Exchange:

Defer capital gains taxes
Diversify and own several properties instead of only owning one property
Relocating to a new area
Changing property types between residential, commercial, etc.
The ability to defer all capital gains taxes from real estate investing

1031 Exchange Guidelines

The real property being sold and purchased must be like-kind or for personal property, must be part of the daily operations of a business or trade.

Proceeds must be transferred thru a qualified intermediary and cannot be touched by the one benefiting from the 1031 Exchange. All proceeds must be reinvested in the replacement property or they become taxable.

The replacement property or properties must be equal or greater in value than the value of the exchanged property and the equity in the replacement property must be equal or greater than the exchanged property.

Deadlines

Identification period