Financial Resource

A 1031 exchange is a method of selling a property. There is more to it than simply selling a property for another property that is equal in value. The properties both have to be qualified for the 1031 exchange, and it must be done in a certain time period. This is not seen as a sale but as an exchange, which has great tax benefits. However, the properties must be seen as equal in value or the 1031 exchange will not work.

When it is done correctly, no taxes have to be paid on the exchange since no gain is taken. If for some reason there is some sort of gain in the exchange and the properties are not the same in value, capital gains tax must then be paid on the gain amount. Also, the person who has sold the relinquished property only has 180 days to receive the replacement property. If it is not done within this timeframe, the exchange is voided. This is true even if the 180th day falls on a weekend or a national holiday.

There are several types of exchanges that can be done under this code. It is not just for exchanging real estate property or commercial property. There are personal property exchanges, simultaneous exchanges, deferred exchanges, reverse exchanges, and built to suit exchanges. Each one of these are allowed under the IRS code, and they are all different situations. For example, a reverse exchange is when the property is received before the transfer of the other property, while a deferred exchange is when the property is transferred and then it is awhile (but within the 180 days) before it is replaced.

A 1031 exchange should be considered in any type of sale, especially a real estate sale, to save on taxes and before potentially losing money.

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