1031 Exchange Properties

1031 Exchange Properties – How The 1031 Tax Exchange Can Defer Your Real Estate Investment Taxes

1031 exchanges, as defined under section 1031 of the Internal Revenue (IRC), are a legal way in which tax payers can defer paying taxes on real estate assets, by reinvesting the proceeds of a sale into a like kind exchange property. 1031 exchange properties utilize the advantageous tax code by either directly swapping like kind exchange properties, or by a deferred exchange, whereby a qualified intermediary is instructed to hold the proceeds of the sale until a replacement property has been acquired. The later is known as a 1031 tax deferred exchange.

1031 Exchange Explained

With the boom in property prices over the last few years, the option to 1031 exchange real estate has become an increasingly popular tax deferment strategy. Generally speaking, in order to qualify, the following rules must be adhered to:

1. The 1031 tax code only applies to investment real estate. 
2. The business or investment property must be of a like kind.
3. The new property must be identified within 45 days of the sale and the proceeds invested within 180 days.

As the IRS themselves stipulate:

“Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031.”

It is imperative that you always speak to your tax advisor or qualified intermediary who will be able to advise you on your own individual circumstances. They will also be able to advise you on some of the other variations of the 1031 code such as a 1031 tenant in common exchange, or a reverse 1031 exchange, which will be explained in greater detail throughout this site.

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