A 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.
What types of 1031 exchanges are there?
1. Forward Exchange (most common): Sell first, then buy. Most common and easiest type of exchange. Net proceeds from sale are held by the QI (qualified intermediary) until the are invested in the replacement property.
2. Reverse Exchange: Buy first, then sell. More complex but solves timing problem. The replacement property is “parked” by the QI until the relinquished property is sold.
3. Construction/Improvement Exchange: This exchange is used when the replacement property is under construction or undergoing significant renovations.
What are the rules for a 1031 exchange?
Value: The new property must be of greater or equal value to the sale property and all equity (or the portion of equity that you want to defer tax on) must be rolled into the new property.
Timeline: Identify target properties within 45 days of closing on your sale. Purchase some portion (or all) of identified properties within 180 days.
Intermediary: You must use a Qualified Intermediary who will facilitate the exchange and hold funds while you are in the process of doing the exchange.
Frequency: There’s no limit on how many times or how frequently you can do a 1031 Exchange.
How would a 1031 exchange benefit me?
If you have, or are starting, a real estate portfolio, the 1031 exchange can be used to move from a smaller to a larger property, to consolidate smaller holdings into a larger holdings, or to “cash in” in on appreciation and optimize cash flow by moving from a lower-cap area to a high-cap rate area. If you’re looking to simplify existing investments, a 1031 Exchange can help you move from actively managed properties (residential properties, gross leases) to more passive investments like triple net lease properties.
Call or text me at (857) 998-0600. Your property or interests may have particular needs.
Jeff Meese Realtor + Architect
Vice-President | ePlace Real Estate