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1031 Tax Exchange Rules - IRS 1031 Exchange Rules

Read more information on pros and cons of IRS 1031 Exchange.
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A crash course in 1031 exchange tax laws

Looking for a savvy investment tool to retain as much of your return on investment legally possible? Then familiarize yourself with IRS Section 1031 of the U.S. Tax Code. The 1031 Exchange IRS Rule allows investors to defer paying capital gains and depreciation recapture taxes when they exchange the proceeds of their old investment property into an exchange property. The guidelines are stringent. But being familiar with IRS Section 1031 speaks directly to the bottom line of your real estate investment portfolio. The 1031 Exchange IRS Rules is an essential tax tool for any savvy investor. No one likes to pay unnecessary taxes, especially as they are trying to build their real estate portfolio, by being familiar with 1031 tax guidelines, you can circumnavigate the quandary of requirements and regulations to successfully and legally take advantage of the 1031 Tax Exchange Rules.

The following are five essential requirements to legally defer the payment of capital gains taxes on investment properties in compliance with IRS Section 1031:

  • 100% Reinvestment: All of the proceeds from the sale of the old investment property must be reinvested into the new 1031 Tax exchange property.


  • Real Property: Both the old property and the new exchange property must qualify as investment property in order to legally defer capital gains taxes in accordance with the 1031 Exchange IRS Rule.


  • Time Limitations: IRS Section 1031 mandates an investor has 45 days to identify up to three potential exchange properties from the close of the sale of the old investment property and 180 days to complete the exchange process.


  • Qualified Intermediary: The transaction must be handled by a Qualified Intermediary who is independent of the real estate investor. They cannot be an accountant, employee, broker or lawyer.


  • Title Requirements: The real estate investor must take title in the same form as they held title in the old investment property.


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