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1031 EXCHANGE SERVICES

A 1031 exchange or Like kind exchange is defined by section 1031 of the Internal Revenue Code. This code specifies that if an asset, usually some form of real estate such as land or a building, is sold and the proceeds of the sale are then reinvested in a like kind of an asset then no gain or loss is recognized, allowing the deferment of capital gains taxes.

In order to qualify certain rules must be followed. Broadly these rules are as follows :

the asset must be of like kind

the proceeds of the sale must be invested in a like kind asset within 180 (property must be identified within 45 days) days of the sale

This is an effective way to defer paying taxes that would otherwise have been due on the first sale, for example - an investor bought a commercial property, a strip mall, for $200,000. After 6 years he sells the property for $250,000. This results in a gain of $50,000 and the investor would have to pay capital gains tax on this amount. However if he invests the $250,000 in another commercial real estate (like kind - does not have to be a strip mall), then he does not have to pay any taxes now and he defers his taxes till a later date.

A 1031 Exchange is similar to a traditional IRA or 401K retirement plan. When someone sells assets in tax-deferred retirement plans, the capital gains that would otherwise be taxable are deferred until they begin to cash out of the retirement plan. The same principal holds true for tax-deferred exchanges or real estate investments. As long as the money continues to be re-invested in other real estate, the capital gains taxes can be deferred. Unlike the aforementioned retirement accounts, rental income on real estate investments will continue to be taxed as net income is realized.

Another way to look at 1031 Exchange is as an interest free loan from the government. The government loans money to pay for taxes that would otherwise be due immediately upon sale of the real estate investment. The loan is interest free and is not due until "cashing out" of the real estate investments. Certain investors, may be able to defer taxes indefinitely, never repaying the "loan".

Source Wikipedia

At Boyer Title, LLC we have the knowledge and experience to properly handle your 1031 Exchange settlement. You will still need a 1031 Intermediary, but if you do not already have one we can recommend one for you.