Requirements for 1031 Exchanges

[Julio Gonzalez]

Are you planning on selling a property and are worried about having to pay capital gains tax?

Fortunately, you have the opportunity to defer the capital gains tax by utilizing a 1031 Exchange.

A 1031 exchange is a tax-savings strategy that allows investors to postpone paying capital gains taxes upon the sale of an investment property by reinvesting the proceeds through the purchase of another property (i.e. a like-kind exchange).

In order to qualify for a 1031 Exchange, there are some requirements:

• The value of the new property must be equal to or greater than that of the sold property in order to defer 100% of the capital gains tax.
• There are time limits to when a 1031 Exchange must take place. This is a key factor and should be discussed with your accountant prior to selling the property.
• If the property is of the same class, character and nature, it is typically considered a like-kind property. However, if you are selling a property in the U.S., a new property outside of the U.S. would not be considered like-kind property.
• The exchange property (both the property you are selling and the property you are buying) must be held for “use in a trade or business or for investment”. This means that private residences including secondary homes do not qualify.

If you’re new to 1031 Exchanges, here is a great article from the IRS.