IRS 1031 Tax Deferred Exchange

Save On Capital Gains Taxes With A Like-Kind Exchange

A tax deferred exchange is simply a method by which a property owner trades one property for another without having to pay any federal income taxes on the transaction. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. But in an exchange, the tax on the transaction is deferred until some time in the future, usually when the newly acquired property is sold. These exchanges are sometimes called "tax free exchanges" because the exchange itself is not taxed. In an exchange, the property owner simply disposes of one property and acquires another property. The IRS's regulations make exchanging easy, inexpensive and safe.

The 1031 exchange provides investors with a vehicle to defer capital gains taxes that would otherwise be incurred on the sale of an investment property. The investor can use the full equity amount to purchase a replacement property. To qualify for an exchange, the properties involved must qualify as "like-kind" that have been and will continue to be held for investment purposes. "Like-use" of properties is not required to complete an exchange. You can exchange a vacant lot for a single home, or a single home for a condominium, etc The exchanger must use a "qualified intermediary". You may make an exchange of multiple properties You must take title to your replacement property within 180 days of the date on which the relinquished property was conveyed, or by the date on which your tax return is due, whichever occurs first. You must identify your replacement property within 45 days of the settlement of your relinquished property. You can identify up to 3 replacement properties.