Don't Skimp on Keeping Records for Your 1031 Exchanges

The whole point of a #1031 exchange is to allow for the deferral of capital gains tax on the sale of investment or business property. When done correctly, a series of subsequent, consecutive exchanges can allow an investor to defer capital gains taxes for decades and even indefinitely in limited situations.

However, when you rely on multiple exchanges to defer capital gains, one thing is non-negotiable – keeping accurate records. The risk of an IRS audit could happen at any time. Even if you conduct multiple exchanges, you will eventually need to calculate the taxable gains from every transaction. Not having immediate and easy access to the needed records invites a headache – or worse – that could otherwise be avoided.

And don’t just make it clear to yourself. Be sure that all your exchange-related records are clear enough that your heirs or executor can locate and understand them in the event that your estate ends up holding your final acquisition. To do anything less is a risk you don’t want to take.

If a 1031 exchange is in your future, visit our website to learn more about these powerful tax deferral tools and our qualified intermediary and replacement property locator services.