1031 EXCHANGE

 

An exchange is rarely a swap of properties between two parties.  Most exchanges, whether they are simultaneous or delayed, involve three parties:  the investor (exchanger) who is doing the exchange, the buyer who is purchasing the exchanger's old (relinquished) property and the seller who is selling the exchanger a new (replacement) property.  To create the exchange of assets and to obtain the benefit of the "Safe Harbor" protections of the tax code to prevent actual or constructive receipt of the exchange proceeds, which would disqualify the exchange treatment, prudent exchangers use the services of a "Qualified Intermediary."  The "Qualified Intermediary" becomes a fourth party principal in both simultaneous and delayed exchanges.                                                                                         

To complete a successful 1031 Exchange a taxpayer needs to:

  • Reinvest all net equity including original investment.
  • Replace any debt.
  • Identify potential replacement property within 45 days from the sale of the former property.
  • Close on the replacement property within 180 days from sale.
  • Place sale proceeds with a "Qualified Intermediary" to hold funds in escrow.
  • Title replacement property the same as the relinquished property (i.e., husband/wife, sole owner, LLC, etc.)

In addition to deferring the capital gain tax, tax deferred exchanges provide the investor with a wide range of non-tax opportunities to suit the investor's portfolio:

  • Improve Cash flow
  • Increase depreciation deduction
  • Reduce management obligations
  • Allow for relocation
  • Eliminate or create joint ownership
  • Reposition assets

As a general rule of thumb, to avoid paying any capital gain taxes in an exchange, the investor should always attempt to:

  1. Purchase equal or greater in net sales price (value).
  2. Reinvest all of the net equity in replacement property.
  3. Obtain equal or greater debt on replacement property.  Exception:  A reduction in debt can be offset with additional cash from exchanger, but increasing debt cannot offset a reduction in exchange equity.

 We have a network of professionals, including 1031 Exchange Specialists ("Qualified Intermediary"), that can provide you with all of the necessary counsel you will need to complete your  transaction.


 

 

 

 

INFORMATION CONTAINED IN THIS WEBSITE HAS BEEN PROVIDED BY SOURCES DEEMED RELIABLE, BUT IS NOT GUARANTEED.  NEITHER THE TOWNER TEAM, GERALD A. TOWNER, JR.,  OR  FIVE STAR REAL ESTATE, GUARANTEE THE ACCURACY OF SAID INFORMATION. PROSPECTIVE BUYERS AND SELLERS ARE RESPONSIBLE FOR VERIFYING ALL INFORMATION PROVIDED ON THIS WEBSITE.