What is a 1031 Exchange? In simple terms it is a swap of one Real Estate investment property for another that allows Capital Gains Taxes to be deferred.
In more detail: Section 1031 of the IRS tax code allows investors to sell investment property and use all the proceeds to purchase new investment property while deferring taxes associated with the sale. To qualify as an exhange, the Relinquished and Replacement Properties must be qulaified "like-king" properties and the transaction must be properly structured as an exchange. "Like-kind" Relinquished Property and Replacement Properties must be real property that has been and will be held for productive use in the investor's trade or business or for investment. (information from IPX 1031)
How does it work?
1. The exchanger signs a contract to sell investment property
2. The 1031 company and exchanger sign an agreement and assigns the their rights to the 1031 exchange company
3. Once closed funds go to the 1031 exchange company
4. Within 45 days the exchanger must identify the replacement property
5. Then there is a maximum of 180 days to acquire the property
6. The exchanger signs a contract to purchase the property and then assigns it to the 1031 company
7. The 1031 company wire the funds
This is just a quick overview, if you'd like more details feel free to give me a call.
Kathy Davis Carlton, Realtor
386-301-3280