What is a 1031 Exchange?

A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, allows commercial property owners to defer capital gains taxes by reinvesting the proceeds from the sale of a property into a new property.

Eligibility Criteria

1. Property must be used for business or investment purposes.

2. Replacement property must be of equal or greater value.

3. Both properties must be within the United States.

    

Key Steps in the Process

1. Sell Your Property:

Begin by selling your current commercial property.

2. Identify Replacement Property:

Within 45 days of the sale, identify up to three potential replacement properties.

3. Complete the Exchange: 

Acquire the new property within 180 days of selling your original property.

Role of a Qualified Intermediary 

A Qualified Intermediary (QI) is essential in this process. They hold the proceeds from the sale and help ensure all rules are followed correctly.

Timeline and Deadlines

45-Day Identification Period:

Identify potential replacement properties within 45 days of the sale.

180-Day Exchange Period: 

Close on the new property within 180 days of the sale of the original property.

Why Consider a 1031 Exchange?

Defer Taxes: Potentially defer all capital gains taxes.

Upgrade Investments: Opportunity to shift into higher-value or more profitable properties.

Diversify Portfolio: Option to exchange one property for multiple properties, or vice versa.

Ready to Learn More? 

The 1031 exchange process can be complex, but we’re here to help. Contact us for personalized guidance and to explore how a 1031 exchange can benefit your investment strategy.