What is a 1031 Exchange - Is it Right For You?
1031 Exchange gets its name from Section 1031 of the U.S. Internal Revenue Code. This section allows you to avoid paying capital gains taxes from the sale of a property when you reinvest the proceeds from the sale with a property of "like-kind", equal, or greater value.
A 1031 exchange is IDEAL for owners who:
Want to Grow, Diversify or Consolidate a Real Estate Portfolio
Want to Defer Taxes (up to 35-40% of the gain)
Want to Switch Property Types and/or Ease Management
Want to Increase Cash Flow and/or Appreciation Potential
Are Estate Planning for Heirs
A 1031 exchange is NOT for owners who:
Want to Cash Out Completely
Want to Decrease The Value of Their Portfolio
Do Not Want To Purchase Any More Real Estate
General Exchange Requirements
Purchase is equal or greater in value.
Reinvest all of the equity into the replacement property.
Obtain equal or greater debt on your replacement property.
Identify your upleg within 45 days of closing escrow on your downleg.
Close escrow on your upleg within 180 days of closing escrow on your downleg.
What Can I Buy As A "Like-Kind" Exchange?
Your upleg can be any income or rental property, land, etc. You can get a physically smaller (but more expensive) property too.
Some exchangers even purchase a retirement or vacation home as their upleg and rent it for two years before moving in - ask your CPA for details!
How Do I Start An Exchange?
If you want to sell your property but aren't sure about doing a 1031 exchange - don't worry! You don't have to know immediately. The exchange is initiated with an accommodator while you are in escrow on the sale. There are a few extra documents to sign, and you're ready to go! Your proceeds will transfer directly to the accommodator where they will be held until you're ready to purchase your replacement property.
Compare A Sale vs An Exchange
For more information visit: The IRS Website I Final Regulations On Like-Kind Exchanges
*We cannot provide advice regarding specific tax consequences. Taxpayers considering an IRC 1031 tax deferred exchange should seek the counsel of their accountant and/or attorney to obtain professional and legal advice.