INVESTOR'S GUIDE: 1031 EXCHANGE

A 1031 Exchange, also known as a Section 1031 Exchange or a Like-Kind Exchange, is a portion of the US tax code that enables real estate investors to defer or postpone paying capital gain taxes following the sale of a business or investment property provided the proceeds are reinvested in a similar property under a like-kind exchange. These gains deferred under IRC Section 1031 are tax-deferred, and not to be confused with being tax-free.

Both the property you are selling and the property you are exchanging for both need to be used for business or investment purposes. Primary residences and vacation homes do not qualify under this definition. Also, like-kind property is such that both properties are similar. The IRS defines like-kind as "property of the same nature, character or class." The incoming acquisition must be of equal or greater value to the asset being liquidated.

This is a frequently used method for long-term investors as well as family offices for whom generational wealth can be preserved over the course of decades. The process is strictly monitored by what is known as a Qualified Intermediary, an attorney whose sole purpose is to ensure the escrow funds are not commingled and the legal timeline adhered to. You must identify the prospective exchange properties in writing within 45 calendar days of the closure for the relinquished property. You must also close on the replacement property within 180 calendar days of the closure for the relinquished property. However, even savvy investors are surprised to learn that it is possible to do a Reverse Exchange, whereby you acquire the new property first, and liquidate the extant property later, under the same 180-day timeline. This is a key investing tool used in markets like the current one where each passing quarter could net a small % gain, allowing you to fully maximize your profits on the resale until the last possible moment.

Of course, we are highly experienced with 1031 Exchanges and have all the available legal and tax resources necessary to guide you through a smooth process.