What is a 1031 Exchange?
Section 1031 of the Internal Revenue Code allows an individual or corporation to defer payment of taxes when real property (land, Oil & Gas interests, mineral rights, buildings, apartments, rental houses, etc.) is sold and other “like-kind” real property is purchased for a price equal to or greater than the net proceeds of the sale within 180 days of closing.
Like-kind refers to the use of the real property. The “old" property and the “new" property (or properties) must be for investment purposes or business use.
Primary residences are not eligible.
Personal property (planes, art work, etc.) are no longer eligible.
All properties involved must be located within the USA.
Section 1031 can be utilized an unlimited number of times.
A Qualified Intermediary ("QI") (1031 Ventures) must be engaged to facilitate the exchange prior to closing on the sale of the old property.
Net proceeds from the sale of the old property are wired to the QI for placement in a Qualified Escrow Account with a federally insured institution (bank).
The Seller of the old property never touches the proceeds from the sale.
Seller must notify the QI of possible replacement / new properties within 45 days of the closing of the old property.
Seller must close on the new property within 180 days of the closing of the old property.
These two deadlines run concurrently. Therefore, when the 45 days are up, Seller only has 135 days remaining to close on the new property.
The QI wires funds to close on the new property.
"Reverse Exchanges" are also available. This is where the new property is purchased before the old property is sold.