What are 1031 Tax Deferred Exchanges & How Do They Work?
In a “1031 exchange” (A.K.A. like kind exchange), an asset – typically real estate – is sold and the proceeds are then reinvested in a “like kind” asset.
By conducting this exchange, the individual will not recognize any losses or gains as per Section 1031 of the Internal Revenue Code. Capital gains taxes are deferred until property is sold and not exchanged.
- The exchanged property must be identified within 45 days
- All proceeds of the initial sale must be re-invested in the like kind property within 180 days of that sale.
- When exchanging property, you must do so if like kind. Real property has to be exchanged with real property, not personal property.
- 1031 Exchanges can only take place with investment property, commercial property, personal property or trade property (no personal residences)
- Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.
Qualified Intermediaries exist to help individuals and businesses execute 1031 exchanges of all kinds. You can find a directory of these companies below.
1031 Exchange Example
An investor decides to sell a four-plex for $200,000 that he purchased 5 years ago for $100,000. If he invests the $200,000 in another investment property — say a 10-plex — through a 1031 exchange, he will not have to pay any capital gains taxes on it after the sale.
Assorted 1031 Exchange Resources
- 1031 Exchange Discussion Forum
Discuss 1031 exchanges and ask any question you have about the use of these tax-deferred strategies.
- Interview With Noted Tax Deferred Exchange Expert And Qualified Intermediary William Exeter – An interview with one of the foremost authorities on 1031 exchanges.
- Federation of Exchange Accommodators (FEA)
National trade association organized to represent professionals who conduct like-kind exchanges known as Qualified Intermediaries
- Field Guide to 1031 Exchanges
Lists commercial & investment properties with focus on exchanges
List of 1031 Qualified Intermediaries
- 1031 Exchange Services, Inc.
Rhode Island based qualified intermediary and member of the Federation of Exchange Accommodators (FEA)
- All States 1031 Exchange Facilitator, LLC
National Qualified Intermediary for Internal Revenue Code Section 1031 Tax-Deferred Exchanges.
- Asset Preservation, Inc. (API)
Qualified Intermediary with over 120,000 1031 exchanges executed
- Exeter 1031 Exchanges Services, LLC
1031 Exchange Qualified Intermediary administering forward, reverse and improvement tax-deferred exchange strategies.
- Starker Services, Inc.
Starker Services, is the nation’s oldest independent Qualified Intermediary firm, supporting all types of tax deferred 1031 exchanges