1031 Exchange

Internal Revenue Code Section 1031(a)(1) states: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of a like kind that is to be held either for productive use in a trade or business or for investment.” This indicates any real estate primarily held for investment or held for productive use in a business may be eligible for a 1031 exchange with these basic qualifications:

• The new investment property must be of “like-kind” to the property being sold.
• A personal residence will not qualify for the exchange, but a vacation home used predominantly as a rental property could qualify.
• The like-kind property to be purchased must be identified within 45 days; the purchase must be completed within 180 days after the sale of the original property.
• A Qualified Intermediary must ensure that all eligibility requirements are adhered to. For instance, the investor must not have access to funds from the sale during the period of exchange, so a third-party Qualified Intermediary will hold the funds in an interest bearing account.
• There are limitations on the amount of capital gain that may be tax deferred. Consult an advisor for more information on this and additional stipulations.

Of course, always consult a tax advisor before making arrangements for a 1031 exchange.