1031 Exchange Leader

What Is IRC Section 1031?

Whenever you sell a business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

We believe it is important for our clients to understand the process they are about to go through before they actually begin. For this reason, we offer details about a series of exchange basics on this page and a wealth of other reference materials on our site.

Types of

1031 Exchanges

1031 exchange rules offer four ways in which you can roll proceeds from one asset into another, without incurring capital gain penalties. All of these methods can be used, whether you are exchanging from one property to another, or are working with multiple assets.

Property Requirements

Both the relinquished and the replacement properties must be held for use in the taxpayer's trade or business or for investment purposes. Personal residences are not eligible as relinquished or replacement properties.

Must Use A

Third Party

The exchange must be set up with a Qualified Intermediary (QI) (by execution of certain exchange documents) prior to the sale of the relinquished property. If these documents are not in place prior to closing, the transaction will be treated as a taxable sale and subsequent purchase, rather than an exchange.

1031 Exchange

Rules & Guidelines

Both the relinquished and the replacement properties must be held for use in the taxpayer's trade or business or for investment purposes. Personal residences are not eligible as relinquished or replacement properties.

1031 Exchange

Timelines

Begins the day the Relinquished Property is transferred by the Exchangor. The Exchangor has 180 days to complete the exchange. The Exchangor has 45 days to nominate (identify) potential replacement properties and 180 days to acquire the replacement property. The exchange is completed in 180 days.

Reporting

1031 Exchanges

You must report an exchange to the IRS on Form 8824, like kind exchanges, and file it with your tax return for the year in which the exchange occurred. If you do not specifically follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions.

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