What is the Reinvestment Requirement in a 1031 Exchange?

Investors flock to #1031 exchanges for the beneficial tax deferral of capital gains. But how, exactly, can you be sure that you will be able to defer 100% of your capital gains tax liability on your transactions?

The IRS has two requirements to ensure 100% tax deferral:

1. You must reinvest all the cash that was generated from the sale of your relinquished property.
2. You must purchase property equal or greater in value to the property you sold.

Of course, if you are not concerned with deferring 100% of your capital gains tax, you can also conduct a partial exchange. This results in, as you would expect, a partial deferral of tax liability. You will still owe taxes, but not on the full amount of capital gains.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.