Definition: Internal Revenue Code Section 1031 allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes if they purchase a “like kind” property following the rules and regulations of the Internal Revenue Code.
The Opportunity: An owner who exchanges can pay no taxes, leaving the full purchasing power of the entire gross sale to acquire considerably more real estate. This allows the owner to use all proceeds from their sale to leverage into other, possibly more valuable, real estate, increase cash flow, diversify into other properties, reduce management or consolidate into one property.
The Challenge: To dispel the myth that “an exchange has to be simultaneous and is complicated to close”.
Since 1991, an IRC Section 1031 tax deferred exchange is rarely a two-party “swap”. Most exchanges are delayed exchanges, whereby the Exchanger has 180 days between the sale of the relinquished property (sale property) and the closing of their replacement property (purchase property) or the tax return due date for the year the property was sold (unless an automatic filing extension has been obtained).
The exchanger must identify the potential replacement property(s) within 45 days from closing on the relinquished property.
IRC Section 1031 exchanges are not hard or complicated to accomplish, but must be completed within specific guidelines.
For a free guide on IRC Section 1031 exchanges, please contact us.