All About 1031 Exchange – 1031 Property
1031 Information – 1031 Tax Exchange

You’ll often hear a 1031 Exchange called different things like 1031 Property, 1031 Tax Exchange, Real Estate Exchange and Like Kind Exchange and they all refer to no tax on selling your real estate property. The 1031 Exchange gets its name from the IRS Tax Code Section 1031 which was first introduced in 1921 but very few know about it. It's a section of the code which defines and lays out the rules for deferring the taxes due on the sale of selected real property. This real property can be any type of real estate used either for business or investment purposes. These can be single family homes or condos, apartments, office buildings, raw land, farms, ranches, commercial, and industrial land with or without accompanying buildings. So you can see it includes just about every type of real estate.

As an investor or a business person you make your decisions to buy or sell based on the profitability and other relevant factors. For example an investor decides to sell an 8 unit apartment building because he will make a $100,000 profit on the sale and he plans to buy another large property once he finds the right one. If he selects to 1031 Exchange, and follows the rules the IRS requires, he does not pay any taxes on the sale of the 8 unit apartment where he has $100,000 in profit. You can immediately see how much this will save you in taxes and this is a major advantage as an investor continues to build his portfolio of properties over the years.

The rules for a 1031 Exchange are simple to follow. The first rule is you must have a Trustee, a Qualified Intermediary or Facilitator to handle the property exchange for you. For the sale of the property to qualify as a 1031 Property Exchange, like the 8 Unit Apartment building in our example, the seller cannot touch the money from the sale it must pass directly to the trustee, intermediary or facilitator chosen to handle this property exchange. Usually in order to obtain the full benefit, the replacement property must be of equal or greater value but there are usual exceptions to this.

The second rule is that an actual exchange of real property for real property must occur. The two Properties you exchange (sell and acquire) must be “like kind”, i.e. used for business or for investment. The IRS will allow some mixing and matching since you are not limited to exchanging for property similar or exactly like your present property. For example one could exchange that 8 unit apartment building for raw land or a commercial mall. The exchange must be structured as a 1031exchange; selling real property used for business or trade or investment purposes and buying i.e. exchanging it for any other type of business or trade or investment property or properties. Another example of this like kind might be exchanging a self operated laundry for an apartment building.

The next rule has to do with the amount of time you have from the sale of the one property to the acquiring of the "like kind" or replacement property. Basically, a target property must be identified within 45 days and the replacement property must be acquired within 180 days. There is some flexibility on these rules so it is very important to have an expert handling the Exchange who knows and understands these flexibilities. The IRS will disallow the transaction as a 1031 exchange real estate exchange if the requirements are not met and the taxes will be due.