1031 Library represents the definitive tax deferred exchange resource portal for investment property investors nationwide.
The Section 1031 exchange is widely considered to be the Internal Revenue Code's last great wealth building tool.
For investment or income property owners it remains an unsurpassed vehicle which drives equity growth, uniquely defers capital gain and depreciation recapture taxes, and dramatically increases buying power.
The IRS allows you to exchange your equity in an appreciated investment property because they view it as you simply moving your cost basis for tax purposes from one qualifying property to another.That said, there are rules which must be followed to totally defer your capital gain tax exposure while you replace both your equity and debt in a new replacement property.
So, here is brief video about the rules and some subsequent keys which will explain some other 1031 related nuances for your benefit. If you have a question or need to speak with a 1031 expert, set up a call or Zoom video conference here!
All properties in a 1031 exchange must be like-kind. The IRS defines this as property held for investment or property held for income.
You have a total of 180 days or until your tax return is due to complete your exchange. Late in the year? You may need to file an extension.
You must identify candidate or targeted replacement properties within 45 days of the closing of your relinquished (sale) property.
When identifying replacement property you must identify using one of three IRS rules. They are the 3 property rule, 200% rule, and the 95% exception.
You must utilize the services of a Qualified Intermediary The QI will create your exchange documentation and monitor your 1031 funds.
The IRS will not allow the Exchanger to have constructive receipt or active control of the 1031 funds during the term of the exchange.
There are multiple types of exchanges. This includes exchanges where improvements are added to the new property or the term extends past 180 days.
It is possible to buy the replacement property before the relinquiahed property is sold. This is known as a reverse exchange.
Some reverse exchanges and build to suit (construction) exchanges are extensible and can be designed to exceed the standard 180 day period.
For a totally tax free exchange, 1) buy equal or greater than your net selling price, 2) move all cash from old to new, and 3) replace your debt.
Getting access to cash in an exchange is risky, and taxable! Refinance well before you sell or immediately after you buy to avoid taxable boot.
Many Exchangers prefer exchanging into a professionally managed investment property which is available from a licensed securities professional.
If you have a 1031 exchange relted question we encourage you to ask it! We'll do our best to get you an expedited answer from a 1031 exchange expert if you use the nearby form.