1031 Exchange - 1031

Avoid Paying Unnecessary Capital Gains Taxes through the 1031 Exchange Option

The 1031 exchange empowers real estate investors to utilize the IRS tax loophole in order to retain as much of their capital gains and reinvest it all while building their real estate portfolio. § 1031 of the Internal Revenue Code stipulates that if an investor follows the parameters of the code they can successfully and legally avoid paying capital gains and depreciation recapture taxes.

Parameters and 1031 Exchange Options

The parameters are strict and courts and the IRS are constantly handing down rulings on the Section 1031. It is imperative that a real estate investor understands the minutia of §1031 requirements and selects a 1031 Qualified Intermediary that is reliable and experienced. The following is a list of helpful information as you sort through different §1031 Exchange options:

• Be Prepared: §1031 deadlines are absolute and if you miss them you will still be subjected to capital gains taxes. It is best to begin searching for potential properties before your relinquished property is sold so that you won't be stuck or caught in a bind trying to meet the 45-day deadline.



• Qualified Intermediary: The 1031 Exchange requires the filing of the legal paperwork through a Qualified Intermediary. The Qualified Intermediary is in direct receipt of the proceeds from the sale of the relinquished investment property and transfers the money directly to the closing agent for the new replacement property. As you search for a Qualified Intermediary make sure they are well versed in the specific type of 1031 Exchange transactions in which you are participating. The IRS code is constantly updated in new court rulings, IRS rulings and amendments, so you want to make sure that your Qualified Intermediary's information is reliable and up to date.



• Time Requirements: The IRS requires that the potential 1031 exchange properties be identified within 45 days from the closing of the relinquished property. The 1031 Exchange transaction must be complete within 180 days from the close of escrow of the relinquished property.



• Title Requirements: The IRS requires that real estate investors take title in the same form in the replacement property as they held in the relinquished property.

This is merely basic information regarding a 1031 Exchange, make sure you consult with your trusted tax advisor or accountant to ensure that you have an in-depth understanding of all of the requirements and tax implications.

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