1031 EXCHANGE

1031 EXCHANGE? IF YOU HAVE AN INVESTMENT PROPERTY ANYWHERE IN THE COUNTRY AND YOU WOULD LIKE TO SELL WITHOUT PAYING CAPITAL GAINS TAX THEN PLEASE READ ON..... 

Have you ever heard an investor talk about a 1031 Exchange then wonder what are 1031 exchanges and why would you want to do something like that? 

While the actual 1031 exchange transaction can be quite complex, the basic concept of a 1031 Exchange is to sell an existing investment property, maybe a single family home on a golf course, with a capital gain and use that money to buy a different investment property, like a condo on the gulf in Naples. The main reason most people use this procedure is to defer the capital gain tax that would be due on the sale. It gets its name “1031" from section 1031 of the Internal Revenue Code that allows for these transactions. It may also be known by other names, such as, 1031 tax exchange, 1031 like kind exchange, IRS 1031 exchange, tax deferred exchange, 1031 real estate exchange, 1031 tax free exchange, Starker exchange, reverse 1031 exchange, as well as many more. 

A 1031 tax deferred exchange is a very structured deal. There are very specific requirements pertaining to the properties, the timing, the people necessary to assist, the title, and the disposition of the money. However with proper guidance, it is not really difficult, and the benefit of being able to build wealth is tremendous. As with any investment, individuals intending to use this devise should discuss this tax deferred exchange with their legal and tax advisors. 

There a few basic rules that you need to understand before proceeding. All properties must be investment properties, either for appreciation such as bare land, or income producing such as rental property. You need to prepare a list of properties you may want to buy within 45 days from the day of closing of your sale. There is no exception to this deadline. Again from the day of closing on your property, you have 180 days to close on the purchase(s) of the properties from the 45 day list. Also there are absolutely no exceptions to the deadline. You must use a Qualified Intermediary (QI) to prepare the legal documents for the exchange and to hold your money from your sale until the purchase. The use of a QI (also known as an Accommodator) is required by the IRS, and must be independent and not related in any way to you, either by family, friendship, or business. You must take title in exactly the same name on the new property as you held it on the old property. And finally, in order to defer all of the capital gain taxes, you must buy property equal to or greater in value than the property you sold, as well as reinvest all of the cash proceeds. Read more 1031 rules at the IRS website.

As a note of warning, you should be very cautious and selective when choosing Qualified Intermediaries. They will be holding your money, so you want to insure its safety. My advice would be to find an experienced organization that can demonstrate their professionalism and knowledge of all 1031 tax exchange issues. Make sure they are bonded, and that they hold your money in a separate account for each transaction. You should also make sure that they are easily accessible to answer any questions you may have at no charge, and are available to offer assistance locally. Due diligence is required, just like hiring any professional. 

Please understand that this article is very elementary regarding 1031 exchange information and that there are many complex issues that must be considered before going ahead. My intention here was to give you a very brief understanding of the process. There are also numerous items and variations, such as boot, like kind, a 1031 reverse exchange, a build-to-suit exchange, or a Starker 1031 exchange, that I have not addressed in this short piece. But by assembling the right team of professionals, including your legal/tax advisor, an experienced and bonded QI, and a knowledgeable Realtor, doing a Section 1031 Exchange can be a very rewarding experience. 

If you would like to know more and not wait for future articles, especially why Naples, Bonita and Southwest Florida are the ideal locations for your next investment, please contact me, a 1031 exchange specialist, at your convenience. I would like to help. 

Dick Dovorany
1031 Exchange Specialist 

Call Today for More Information 239-293-1969 or toll free 1-800-562-0233 Ext. 159


1031 Tax Exchange Glossery of Terms