What is a 1031 Exchange?

What is a 1031 Exchange?

A 1031 Tax Deferred Exchange offers taxpayers one of the last great opportunities to build wealth and save taxes. By completing an exchange, the Taxpayer (“Exchanger”) can dispose of investment or business-use assets, acquire replacement property and defer the tax that would ordinarily be due upon the sale.

1031 refers to section 1031 of Internal Revenue Code. A 1031 Exchange allows people to defer Federal capital gains tax, state ordinary income tax, healthcare tax, and depreciation recapture on the sale of Investment property and some personal property if certain criteria are met including:

  • Buy replacement property for equal or greater than sold for and reinvest all proceeds
  • Identify replacement property within 45 days of close of sale
  • Purchase replacement property within 180 days of close of sale
  • Must Sell and Buy property that is considered “like-kind” to each other
  • Process must be handled by a Qualified Intermediary