1031 Tax Deferred Exchange

A Tax Deferred Exchange is an extremely powerful investment technique which allows your tax dollars to remain invested in property rather than being paid out as capital gains tax.

Exchanging allows a buyer to leverage the deferred tax savings into new investment properties that can produce additional cash outflows and create wealth.

Section 1031 of the Internal Revenue Code states, "No gain or loss shall be recognized if property held for productive use in trade or business or investment purposes is exchanged solely for property of a like-kind."

Single or multiple properties may be exchanged in the transaction.  Exchange proceeds are held by a Qualified Intermediary.  An Exchange Agreement and Assignment are utilized for all properties in an exchange.

Specific requirements defined in the IRS Section 1031 include a 45 day identification period and a 180 day period to purchase a replacement property.  Lastly, an investor must utilize a Qualified Intermediary.  The taxpayer cannot receive any proceeds from the sale of relinquished propety.

Reverse 1031 Tax Deferred Exchange

A Reverse 1031 Tax Deferred Exchange is necessary when you find a property you would like to aquire before you sell your current investment property.  It is a great tax savings because you defer your tax liability on the old relinquished property and put the tax savings to work for you.

The IRS Revenue Procedure for reverse exchange transactions:

1. Exchanger and an Exchange Accommodation Titleholder must enter into a "qualified exchange accommodation agreement" within five days of the purchase of the replacement property.
2. The Exchanger must identify the old property by 45 days after the purchase of the replacement property.
3. The old property must be sold and the transfer of the new property must be completed within 180 days from the purchase of the replacement property by the Exchange Accommodation Title holder.

Conatct me if you would like more information about 1031 Exchanges

1031 Exchange information courtesy of Bankers Escrow Corporation

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