1031 Exchange

About 1031 Real Estate Exchange.
A 1031 tax-deferred real estate exchange is a great way to save a large amount of money when upgrading commercial real estate.  In essence, such an exchange allows you to sell commercial real estate and purchase a replacement real estate without paying any capital gains taxes.

Section 1031 of the Internal Revenue code liberates investors from declaring any taxable income on the sale of commercial property if the seller accepts "like kind" real estate rather than cash as payment.  This can apply to any real estate exchange as long as all involved parties strictly adhere to IRS guidelines.   

How to successfully carry out a 1031 exchange.
Properly executing a 1031 tax-deferred exchange is fairly simple, but we recommend you seek professional counsel as you go through the process.  A mistake or miscalculation can become very costly.

A tax-deferred exchange is just like a regular real estate transaction, except that before selling property, you should choose an IRS-sanctioned middleman officially called a "Qualified Intermediary" to serve as your representative throughout the process.  The Qualified Intermediary accepts the payment for your relinquished commercial property and places it in a special bank account.  This is a critical step -your 1031 exchange is void if you receive direct payment for the initial sale.   

Once you have sold your property, you will have 180 days to purchase a replacement.  During the first 45 of those 180 days, you may locate potential replacements and identify them in writing.  You may select up to three potential replacements -or more as long as the total value of identified replacements does not exceed 200 percent
of the value of the relinquished property.

Once you have decided upon a particular replacement property, the Qualified Intermediary purchases the property and transfers ownership back to you.  This information is intended as a general overview.  If you are interested in a 1031 exchange, you will be best served by enlisting the help of a lawyer and a tax accountant.