• header_008.jpg
header_007.jpg

What is a 1031 Exchange?

——————

Section 1031 of the internal revenue code provides an alternative strategy for deferring the capital gains tax that may arise from the sale of a business or investment property. By exchanging real property for like-kind real estate, real property owners may defer federal tax obligations and apply all the proceeds toward the purchase of replacement property.

icon-question-o.png

What are examples of like-kind real estate that qualify for 1031 exchanges today?

Wholly Owned Assets

Vacant Land

Commercial Rental Property

Commercial Property

Industrial Property

Farm Property

Residential Rental Property

Doctors Own Office

Fractionally Owned Assets

Beneficial Interest in a Delaware Statutory Trust (DST)

Tenant in Common Interest in Investment Property

Both the relinquished and the replacement properties must have been held for investment purposes or for productive use in a business. A primary residence does not qualify for a 1031 exchange property.

Potential Benefits of a 1031 Exchange

——————

icon-check-o.png

Tax Deferral

No gain or loss should be recognized on the exchange of real property held for business or investment when exchanged solely for like-kind property held for productive use in a business or investment property.

icon-check-o.png

Diversification

For example a person may elect to sell a residential rental for $1,000,000 as a relinquished property and diversify by investing in three replacement DST properties, one third in Student Housing, one third in Assisted Living, and one third in Climate Controlled Storage.

icon-check-o.png

Potential for Increased Income

It may be beneficial to exchange properties with diminishing income for other property offering greater income potential.

icon-check-o.png

Improved Purchasing Power

Rather than paying the tax on the relinquished property, use that money to purchase a replacement property of higher value.

icon-check-o.png

Reprieve Management Responsibilities

Often people become tired of the responsibility of property management and maintenance, and at this time they choose to exchange into properties which are fully managed for them.

The Process

——————

The 1031 exchange process has three essential steps.

Step 1

The exchanger (investor) sells a property known as the relinquished property, and most importantly at the close that sale, the proceeds are escrowed with a “QI,” qualified intermediary. The exchanger (investor) does not touch the proceeds.

Step 2

The “QI” qualified intermediary, through a written agreement with the exchanger (investor), holds the proceeds in the escrow account, and then transfers those funds to the close of the replacement property purchase.

Step 3

The exchanger (investor) receives ownership of the new replacement property or ownership of an interest in a Delaware Statutory Trust (DST).

Defined Timeline

——————

calendar-icon-day1.png

Close on the sale of the relinquished property.

calendar-icon-day45.png

Last day to identify potential replacement properties.

calendar-icon-day180.png

Last day to close on replacement property purchase.

Contact us for more information on Turnkey 1031s Exchange Program