1031 Tax Deferred Exchanges

FREQUENTLY ASKED QUESTIONS

What does the term “1031” mean?

The Internal Revenue Code Section assigns the number 1031 to tax-deferred exchanges.

When must the investor open a 1031 exchange?

Prior to closing on the sale of the relinquished property or the purchase of the replacement property.  The exchange must be in place and delivered to all parties before the transfer of title.

What are the requirements for deferring all the tax on one’s gain?

First, buy a properly identified replacement property of equal or greater value than the relinquished property.  Second, use all of the proceeds from the sale of the relinquished property to acquire your replacement property.

What is the 45-day identification period?

The replacement property must be identified within 45 days from the closing of the replacement property.  No extensions are allowed.

What is the 180-day exchange period?

The 180-day exchange period is the time in which the exchangor must complete the 1031 exchange.  No extensions are allowed.

Can I purchase my replacement property before I sell my relinquished property?

Yes.  This type of transaction is called a Reverse Exchange.  It is somewhat more complex than other exchanges and requires special oversight, yet can be a most valuable tool. 

What is “like-kind” property?

IRC Section 1031 defines “like kind” as property that is income producing or held for productive use in a trade or business.  Vacant land also qualifies if it is held for productive use or investment.

Can I exchange for property in another state?

Yes.  Equity Investment Exchange handles exchanges in all 50 states.

Can I earn interest on exchange proceeds held in my exchange account?

Yes.  We have two fee schedules to choose from.

 Can I take cash out of an exchange transaction?

Yes.  Any cash taken at the time of sale of the relinquished property would be taxable, and should be addressed in the exchange agreement.

Do I have access to my money during the exchange?

During the exchange period, your proceeds may only be used to acquire replacement property.

What is “boot?”

“Boot” is any type of property received in an exchange that does not meet the “like-kind” requirement.  For example, if the exchanger receives a car, plane, cash, or mortgage relief, rather than real property, that “boot” is subject to tax.

If I own property that is both my primary residence and investment real estate, can it qualify for an exchange?

Yes.  Consult your tax advisor to determine the percentage of the value of the property you have reported as an investment on your past tax returns.

How can I learn more about 1031 exchanges?

Call Equity Investment Exchange for a free consultation.

“Change is good …  Exchange is better.”