The 1031 Exchange - An Overview
Section 1031 of the US Internal Revenu Code allows owners of real estate to defer capital gains if they exchange into like kind properties. The requirements of Section 1031 are specific and must be met to realize this "tax free exchange".
General Requirements
- The exchange must be "like-kind" property. The kind means relinquished in nature or character.
- You have 45 days to identify your replacement property.
- You have 180 days to close on your replacement property. The title must pass from the seller to the taxpayer within the 180 days.
- The title on the replacement property must mirror the title on the relinquished property. It should be noted there are some exceptions.
- The replacement property must be greater than the relinquished property. Any monies received from the sale of the relinquished property and not reinvested in the replacement property are considered boot and is subjet to taxation.
The application of Section 1031 in relation to a specific property can only be determined after the revenue of a taxpayer facts and circumstances from an attorney, financial analyst, tax advisor, or intermediary.
