1031 Exchange Help Please!!

[Matt Strange]

I just completed my first flip and cleared 10k, I then bought another property and put down 5k on the house.   How and when can I utilize the 1031 exchange?  I have read several things on this great tax benefit but I am struggling to understand the process of putting it into action or documenting it correctly.

Can anyone help walk a rookie through this?

[Robert Rayford]

@Matt Strange, A properly structured tax deferred exchange under IRS code 1031 allows businesses and individuals to defer the capital gains and other taxes associated with the sale. To successfully complete a 1031 tax deferred exchange, there are specific requirements that must be met and clients must engage the services of a professional Qualified Intermediary. Prior to a sale of a property you must first bring on board a Q.I to handle the exchange of funds. This can be done through your Title Company. The Q.I receives the funds at closing and holds the funds until you want to use them for another purchase. If you sale a property and have the funds deposited into your business or personal account then you can not use the 1030 exchange program.  The clocks starts ticking once the funds are in the Q.I accounts. There are time limits for use. In general, any type of US real property held by the client for productive use in a trade or business, or for investment purposes can be exchanged for more real property as long as the properties are of “like-kind” or "apples to apples" . There are many different types of exchanges that are available to investors, each with their own specific requirements and limitations. It's always a good ideal to seek a consultation from a CPA because every investor has their own set of circumstances.