1031 Tax Exchange

[De Andre' Little]

Can someone take the time to help me understand the 1031 tax exchange? Thank you ahead of time!

[Dave Foster]

Close @Les Goss. It's actually qualified intermediary but you are correct. 

@De Andre' Little There's some very specific requirements that must be met.  And the application of those can be tricky but overall performing a 1031 exchange isn't any more difficult than selling a piece of investment real estate and buying a piece of investment real estate under the guidance of the intermediary.  The basics are

1.  The 1031 is for investment real estate not your primary residence and not real estate you purchased primarily to resell immediately (fix n flip)

2. You must use the services of a qualified intermediary and they must be in place prior to the sale of your old property.  They document the transaction and transfer funds on your behalf.

3. From the day of closing your sale you have 45 days to identify your potential replacements and from the same day you have 180 days total to complete the exchange.

4. The taxpayer for the old property and the taxpayer for the new property must be the same.

5. In order to fully defer all tax you must purchase at least as much as you sell and you must use all of the proceeds from the sale in the next purchase or purchases.

If used correctly the 1031 allows you to roll the tax forward into the new property and as long as you either hold that property or do another 1031 when it is time to sell that property you will defer the tax and any additional tax indefinitely.

There are also strategic ways to eliminate that tax totally.