1031 Exchange

W. W. Young specializes in assisting clients successfully execute one of the best and last ways to build wealth and avoid taxes - the 1031 Exchange. A successful 1031 exchange allows you to sell a property, to reinvest the proceeds into a new property and to defer all capital gain income taxes. The laws concerning 1031 exchanges are exacting and due diligence is required, but a properly executed 1031 exchange offers tremendous tax savings. We will gladly navigate you through the process and locate eligible new properties for your consideration, as well as locate buyers for the property that you wish to sell.

According to the Internal Revenue Service, generally if you exchange business or investment property solely for business or investment property of a like kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.

Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes other securities or evidence of indebtedness, or certain other assets.

Like-Kind Property: Properties are of like kind if they are of the same nature or character, even if they differ in grade or quality.

Examples of like-kind properties

Raw Land
Apartments
Duplexes
Commercial
Industrial

Investment/Business Properties exchanged can be of different values and there can be multiple property transactions performed in one exchange.

1031 Exchange Requirements:

Both the property that is sold and purchased under the exchange must be held for solely for investment or business purposes.
Both the property that is sold and purchased under the exchange must be of like-kind.
A qualified intermediary and a qualified escrow agent must be used. (This is usually a title company)
Must use the appropriate 1031 exchange documents.
Must meet the appropriate timeline requirements. The timelines are very strict and must be adhered to.

1031 Timelines:

Must identify replacement property/properties within 45 days of selling your investment/business property.
Must close on replacement property within 180 days or tax return date

Identifying New Alternative or Multiple Properties:

You can identify more than one replacement property. Regardless of the number of properties you give up, the maximum number of replacement properties you can identify is the larger of the following:

Three

Any number of properties whose total fair market value at the end of the identification period is not more than double the total fair market value on the date of transfer of all properties you give up.

If, at of the end of the identification period you have identified more properties than permitted under this rule, the only property that will be considered identified is:

Any replacement property you received before the end of the identification period, and any replacement property identified before the end of the identification period and received before the end of the receipt period, but only if the fair market value of the property is at least 95% of the total fair market value of all identified replacement properties. Fair market value is determined on the earlier of the date you received the property or the last day of the receipt period.

If you are considering a 1031 tax deferred exchange and could benefit from someone guiding you through the process of exchanging properties please call or drop us and email and we would delighted to help in any way that we can.

The information above is not to be construed as legal or tax advice. It is highly recommended that you consult your attorney and tax advisors for the most up to date information on 1031 exchanges.