Reform is behind us and we are happy to report that Section 1031
remains in the Tax Code. Now that investors and businesses have seen
the details of the tax legislation, interest in structuring real estate
transactions as 1031 tax deferred exchanges has seen great momentum.
Here are some points to consider when contemplating a 1031 tax deferred
- 1031 Exchanges are used to defer taxes only on real estate.
1031 Exchanges for personal property were eliminated in the Tax Cuts
and Job Act of 2017.
- 1031 Exchanges allow taxpayers to defer capital gain taxes
and depreciation recapture taxes and the 3.8% Net Investment Income Tax.
- To completely defer payment of any capital gains taxes,
taxpayers need to purchase Replacement property with a value equal to
or greater than the property that is being sold. In some cases the
taxpayer may purchase a property of lesser value and still defer a
significant amount of tax.
- 1031 Exchanges follow strict time limits. Once the
Relinquished property is sold, taxpayers have a total of 180 calendar
days to purchase Replacement property. Within the first 45 days of the
180 the taxpayer must identify the Replacement property that they
intend to purchase.
- Exchanges between related parties are allowed, but specific
rules must be followed. Buying from a related party requires advanced
- Partnerships may participate in 1031 exchanges. However,
if the partners do not wish to stay together for the exchange, there
are several interesting structures that can be considered.
- Taxpayers must utilize the services of a “Qualified
Intermediary” when participating in a 1031 tax deferred exchange. The
Intermediary provides guidance, proper documentation and secures the
taxpayer’s funds between the sale and purchase.
- 1031 Qualified Intermediaries are not regulated by the
Federal Government, nor most State Governments. Therefore, it is up to
taxpayers to ascertain the competency and safety of their chosen
Intermediary. Questions that should be asked include:
- Who owns the 1031 Intermediary and how financially stable
are the owners?
- What criteria does the 1031 Intermediary use to select
its depository banks?
- Does the Intermediary have a Fidelity Bond, Errors and
Omissions insurance and a Corporate Guaranty?
- Does the Intermediary have Certified Exchange
Specialists® on staff?
- Is the 1031 Intermediary a member in good standing in the
Federation of Exchange Accommodators (FEA)?
for more information or contact us with any questions!
IPX1031- Choose the Experts
As the nationwide leader in tax deferred exchanges, IPX1031 is
here to offer you the best in service, experience and security. When
you choose IPX1031 as your Qualified Intermediary, you can be confident
that your exchange will be handled expertly and that your funds will be
safe, secure, and available when needed. IPX1031 strives to help our
clients and their advisors keep current on tax and industry issues
pertaining to 1031 Exchanges. For more information about us, additional
resources, or our complimentary monthly webinars, visit our website at www.ipx1031.com.