A 1031 exchange is a great way to defer any tax liability on the sale of commercial property.
Section 1031 of the Internal Revenue Code defines the exchange and provides that no gain or loss shall be recognized on the exchange of property held for “productive use in a trade or business, or for investment.”
Here are the basics of doing a 1031 Exchange that you should know if you are thinking about selling an investment in one property to purchase another:
- Property type –
- Time held – TYPICALLY, property should be held for at least one year before being exchanged
- The same entity/taxpayer that sold the 1031 exchange property has to buy the new 1031 exchange property. IF the owner of the property is a partnership, there are some complications. Check them out BEFORE attempting
- Valid Exchange – proceeds from the sale would have to be held by a “Qualified Intermediary” and ALL documents – must be specific in stating the exchange is for like-kind property, NOT owned by the same entity
- Value – The new investment has to be of equal or greater value than the old one
- Time – New property must be identified within 45 days sale, new purchase must be completed within 180 days
- Intent – All documentation must show that the intent was to follow ALL the requirements of a 1031 exchange
1031 Exchanges are great, BUT you must make sure you “check all the boxes” – we can guide you through the entire process and help you gain income from owned properties and NOT paid taxes when you switch. ASK US!!
