Section 1031 of the tax code (see below) provides for the deferral of gains on real property used in business or for investment. For example, an investor sells a rental home for $200,000 realizing a profit of $100,000 - that investor uses a 1031 exchange as the vehicle to defer paying capital gains taxes on the sale of that rental house. The seller must use the funds from the sale to buy another “replacement” property as long as the new property is of greater or equal value, and it is not one’s primary residence.
In short, it’s akin to trading one property for another as long as all the would-be gained funds go toward the new property. In the example above, assume the seller now identifies and purchases a new rental for $300,000. The seller defers the tax on the $100,000 gain by reducing the basis in the replacement property by the $100,000 gain.
The main reason to perform a 1031 exchange is for the tax deferment itself - however, there are a few other opportunities made more readily available through an exchange.
Business owner? An exchange could make the possibility of expanding your operations a reality. Invest in a more profitable area without needing to pay the cost of sale.
Own rental properties? Swap your current rentals for more rewarding ones that will see more returned to you month over month.
Expecting disagreements over estate inheritance? You can diversify your wealth by exchanging a single estate for multiple smaller ones that can be easily divided between heirs so everyone can have their own way.
By law, a third party is required to facilitate the exchange to ensure that the investor is not receiving any of the funds being transferred. Known as a Qualified Intermediary, this entity is responsible for holding the funds and then allocating it to the new property.
That’s where we come in. Having an experienced Qualified Intermediary can help avoid any missteps that might end up in a problem with the IRS. Our team is backed by over 30 years of experience in the industry, including veterans of real estate, CPAs, and financial advisory. We’ll handle the transferring and provide our expert advice along the way to ensure you make the best deal possible.