Section 1031 of the Internal Revenue Code rules and regulations allow the owner of an investment property to SELL the investment property and BUY another like-kind property of greater or equal value. The Capital Gains Taxes on the sale of the “relinquished” property are deferred until the “replacement” property is sold at a later date. This technique is called a Tax Deferred Exchange.
The investor can use the entire amount of the equity from the sale of the relinquished property to purchase substantially more replacement property. In other words, the substantial amount in tax dollars saved by an Exchange can be used to purchase additional investment property.
√ All replacement property(s) must be identified within 45 days after the sale of the relinquished property.
√ All replacement property(s) being purchased must be closed on within 180 days from the date that the first relinquished property was sold.
√ To be fully tax-deferred, the acquired property(s) must be equal to or greater than the value of the relinquished property.
The QI is the entity responsible for facilitating an exchange in accordance with Treasury Regulation §1031.1031 (k)-1(g)(4)(iii). Per the 1031 Treasury Regulations, the Exchange Agreement must expressly limit the Exchangor’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the QI. Typically, the use of a Qualified Intermediary (QI) is required in the completion of a 1031 Tax Deferred Exchange. Once the Exchangor enters into a written agreement (“Exchange Agreement”) the QI is responsible for:
William D. Fergus, Esq.
Exchange Counsel | email@example.com
Bill is a practicing attorney and legal services partner at Northwest Law and General Counsel for Northwest Title. He has over 26 years of legal experience and an extensive background providing counsel for real estate title insurance transactions.
If you are selling your property and are thinking about participating in a 1031 exchange, call NW Exchange at 614.610.9908.