1031 Exchange
A Tax-Deferral Strategy
1031 Exchange
A 1031 exchange, also know as a like-kind exchange, is a provision in the United States tax code (Section 1031 of the Internal Revenue Code) that allows real estate investors to sell one investment property and reinvest the proceeds into another property of like kind, deferring capital gains taxes on the profit made from the sale. This tax-deferral strategy enables investors to continue building their real estate portfolios without immediately incurring taxes on the gains generated from property sales.
1031 Exchange Timeline
IRS guidelines mandate that investors must pinpoint a suitable replacement property within a 45 day window after the sale of their current property. A total of 180 days to conclude from the day of sale to the date of purchase of the new property.
The Making of A 1031 Exchange
01
Identification
During the Sale of your Relinquished Property you must identify a "like-kind" property. The new property must be of equal or greater value of the relinquished property, although the does not have to be the same quality or grade.
02
Representation
Working with qualified experts. At Guzman, our team has the experience to complete 1031 transactions with 100% success rate. In addition we partner with expert intermediaries, also know as exchange facilitators or accommodators. Our team guarantees not to miss key deadlines.
03
The IRS
Reporting the exchange to the IRS by filing Form 8824 with your tax returns. We highly encourage to speak with your CPA or tax preparer anytime you are considering a 1031 exchange.
Relinquished Property
Also known as downleg, exchanged property for like-kind in a 1031 exchange.
Replacement Property
The replacement property is the like-kind property more commonly known as the upleg of the exchange.
Step 1
Property Sale
A 1031 exchange process begins with selling the current investment property (relinquished property). The potential purchase property must be of like-kind, meaning it's also real estate used for investment purposes.
Types Of Exchanges
01
Delayed Exchange
A delayed exchange is the most common type of exchange. It allows investors to sell their old property and then purchase a new one within 180 days. The money form the sale is held by a qualified intermediary until you're ready to close escrow on replacement property. This ensures a smooth transition between properties.
02
Reverse Exchange
A reverse exchange is when you buy a replacement property before selling your old one. In this scenario, the property transfer is handled by an exchange accommodation titleholder, who serves as the qualified intermediary, ensuring a smooth process.
03
Build To Suit Exchange
A build-to-suit exchange, lets investors use the tax dollars from selling their investment property to fund renovations on the replacement property. Investors must ensure that all improvements on the replacement property are finished within 180 days. This can be challenging for larger complex projects. Failure to meet deadline could result in tax consequences.