What is a 1031 exchange?It is the Section of the IRS Code which
created a significant opportunity for taxpayers to exchange "like-kind" property
without a tax consequence. The property you transfer must be "qualified"
property. Generally, the qualifying property is held by you for use in
trade or business or property held for investment purposes. Qualifying
property does not include inventory or other goods held primarily for sale.
Nor can you exchange your personal residence for rental property. This
does not mean the exchange must be identical to that you receive. For
example, an apartment complex can be exchanged for vacant farmland. But
watch out for an exchange of livestock of different sexes. That is not
considered a like-kind exchange. And that's no bull! (Sorry we couldn't
resist the pun.)
The transfer of the property may be
"simultaneous" or "delayed". The delayed exchange opens up more
flexibility for you as real estate owner. You can exchange your property
before acquiring the "replacement property". It gives you more time
to identify the replacement, and eventually to secure it while still gaining the
benefits of a simultaneous exchange. Such exchanges use a third party
"exchange intermediary". We can arrange them for you.
Finally, the 1031
exchange involves rules and calculations we've not gone into here. If
you'd like to examine such a strategy, we'd be happy to sit with you and help
you determine if it is appropriate for your situation. Just click on the
"Contact Us" link above.
