1031 Exchanges have become fairly commonplace for both buyers and sellers involved in today’s real estate transactions. Many of the transactions that I broker incorporate the use of a 1031 Exchange by one or both parties. I highly stress the importance of consulting with an accountant, attorney, financial advisor, or qualified intermediary – ideally all four – before initiating this process.
Under the right set of conditions, utilizing a 1031 Exchange might provide the opportunity to defer capital gains tax when selling property in instances where the difference between the original cost basis compared to current market value may be substantial, and/or in cases where the selling property has been mostly depreciated. If a seller is not interested in drawing the cash from a sale of real property, but rather, is interested in reinvesting the proceeds into other real estate, a 1031 Exchange is definitely an investment tool worth considering.
To meet the current requirements of a 1031 Exchange, the proceeds from the relinquished property must be exchanged for other “like-kind” replacement property. The replacement property must also be identified within 45 days of the sale of the relinquished property, and must be closed on within six months of the sale of the relinquished property. As well, proceeds in the 1031 must be exchanged through a qualified intermediary. |
