UNDERSTAND 1031 EXCHANGE

As per IRC §1031, a legal property exchange is the selling of one property with the intention of reinvesting the profits into a new property and thus deferring capital gains taxes. These transactions allow investors to continue investment in other property without losing investment equity to taxes.

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."     IRC §1031

If you exchange investment property exclusively for like-kind investment property, no gain is recognized by the IRS, making the exchange a desirable option for investors eager to keep all of their real estate profits. Exchanges serve also as a factor in facilitating considerable portfolio growth and better Return on Investment (ROI).

The replacement property must be identified within 45 days and acquired within 180 days of the sale of the old property. To be eligible for a safe harbor tax deferral, the proceeds need to be held with a Qualified Intermediary between the time of sale and the purchase.

Be sure to check with a Financial Advisor for tax or legal advice before starting the exchange process with Accommodator. Then simply contact an Accommodator Finance Representative to begin a fully guided and easy exchange process.

Step 1: Selling the Property

AFC prepares and organizes the required documentation which the investor completes for the sale of the relinquished property

Step 2: Identifying a Replacement Property

AFC facilitates the identification of a replacement property to reinvest the proceeds from the sold property.  IRC §1031 requires that identification take place within 45 days and generally permits up to three properties to be identified as potential replacements.

Step 3: Purchasing a Replacement Property

The investor, with the guidance of AFC, purchases the replacement property within 180 days of the sale of the relinquished property. The proceeds held by AFC from the sale of the relinquished property will then go to the investor’s escrow company, who will then give the deed of the replacement property to the investor once the transaction is completely closed.

There are several types of exchanges: delayed exchanges, reverse exchanges, improvement exchanges and personal property exchanges. AFC’s expertise in all types of exchanges and renowned focus on client needs has ensured that our clients receive the maximum benefit through their deferred tax exchange.

by Marc Fischer

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