1031 Tax Deferred Exchange

Professional Mortgage Lending  

How would you like to defer your capital gains tax liability on the sale of your investment property? Well it can be done…legally. A little known tool to achieving a tax deferred transaction is known as the “1031 Exchange”. This transaction is authorized by section 1031 of the IRS code and offers investors a reliable strategy for the deferment of capital gains when selling investment or business property.

The IRS code states, "no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment."

A successful 1031 exchange allows the investor to reinvest 100% of the equity from the sale of an investment or business property into the purchase of a like kind replacement property without recognizing any taxable gain.

As stated above the properties being exchanged must be of “like kind”. Like-kind is defined as real property held for business use or investment. Any type of real property used for business use or investment will usually qualify. An investor may sell one property and acquire three or sell four and acquire one. 1031 exchange applies to all investment properties, large and small. It works the same way for an individual selling a single family home used as rental property as it would for a corporation selling a large shopping center.
The 1031 exchange is not an exchange as in a barter system. Instead, it is a typical sale and purchase that involves the same basic ingredients as any other sale or purchase transaction, except without the capital gains.

Although not complicated, you are required to use a professional to assist you. These are called Intermediary’s and they are individuals or companies that specialize in 1031 exchanges. The intermediary is responsible for keeping you aware of your time deadlines and ensures that you do everything to stay within IRS regulations. They also act as a middleman in both the sale and purchase transactions.
- Here are the basic requirements of a 1031 exchange:
- Both properties must be “like kind”. Most types of investment or business use properties will qualify.
- Both properties must be held for investment or business use
- You must use a qualified Intermediary
- There must be an agreement between the exchanger and the intermediary
- The exchanger must meet certain time limitations. They include a 45 day identification period in which you must identify a property you are intending to acquire and a 180 day period in which to close on a replacement property.

Of course this is a simplified overview of the 1031 tax deferred exchange plan. Please consult with your accountant and a qualified intermediary prior to initiating any formal action.

To find out more about 1031 Exchanges contact:
OREXCO
1105 Sanctuary Parkway - Suite 450
Alpharetta, GA 30004
(866) 330-1031
(770) 569-1294
(770) 569-1316 Fax
rhollinger@orexco1031.com
www.orexco1031.com