1031 Tax Deferred Exchange - 1031 Tax Free Exchange

Why Pay Unnecessary Capital Gains Taxes?

The 1031 Tax Free Exchange is first and foremost a financial tool used to defer paying capital gains and depreciation recapture taxes on real estate investments, not a tax-evasion tool. The 1031 Tax Deferred exchange is a vital part of any savvy real estate investment strategy. § 1031 of the IRS Tax Code allows an owner of real estate investment properties to take the proceeds and profits from the sale of their old investment property and identify and purchase an exchange property of a like-kind or greater value to defer paying capital gains and depreciation recapture taxes. Thus, the 1031 Tax Free Exchange is an essential part of any real estate transaction, it requires careful thought and precise planning as the deadlines and requirements are complex and ever changing. Investors in the process of putting an investment property on the market should begin considering how they will identify properties and utilize the 1031 Tax Deferred Exchange as soon as possible to ensure compliance with all of the requirements and deadlines.

The following is four things you should know as you investigate the benefits of a 1031 Tax Deferred Exchange:

• 100% Reinvestment: In order to legally defer the payment of your capital gains and depreciation recapture taxes you must reinvest 100% of the proceeds of the sale of your old investment property into the new 1031 Exchange property.



• Time Limitations: The IRS stipulates investors who use a 1031 Tax Deferred Exchange must identify three potential exchange properties within 45 days of the close of escrow of the old property. One of the identified properties must close within 180 days of the closing of the old investment property.



• Qualified Intermediary: A Qualified Intermediary who is an independent agent must facilitate the transaction; therefore they cannot be an accountant, lawyer, broker or employee of the real estate investor.



• Title Requirements: An investor must take title to the new 1031 Tax Free Exchange property in the exact form as they held title in the old investment property.

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