When investment real estate is sold, payment of capital gains tax can be deferred IF the taxpayer does a 1031 exchange. In other words, instead of selling the property for cash, the taxpayer exchanges it for a like-kind property. In a 1031 exchange, “like-kind” means exchanging one investment property for another investment property.

Elaine Brockman is a reverse exchange coordinator for the 1031Exchange Experts, LLC.

A 1031 exchange is NOT ‘a-sale-and-a-purchase,’ but an exchange of one property for another. There must be a written exchange agreement that shows that ALL the steps, from the transfer of the old property to the receipt of the new, is part of an overall plan. That plan being the 1031 exchange.

“The rules for an exchange are not complex, but they are strict....”

The rules for an exchange are not complex, but they are strict: 1) The real property must be held for long-term investment—not for quick turnaround or just for personal use. 2) You have 45 days to identify what you are going to buy. 3) The whole exchange must be finished within 180 days. 4) The IRS says you must use a Qualified Intermediary, also called a ‘QI.’ 5) You must purchase and take title to your new property exactly as you held title to your old property. And finally 6) To defer all of your capital gain tax, you must buy a property equal or higher in value than the one you sold. Also, you must reinvest all of the cash proceeds from your sale.

To structure a real estate transaction as a 1031 exchange, you must use a Qualified Intermediary. A Qualified Intermediary is the entity or company that does the exchange: holds the funds, does the paperwork, and more.

In order to properly complete a 1031 exchange and defer capital gains tax, all the proceeds from the sale of your old property MUST be held by a QI until it is used for the purchase of the new property. Therefore, you can NOT hold, use, steer or direct the money while the 1031 exchange is taking place.

But when you choose The 1031 Exchange Experts to act as your QI, we provide you with our exclusive 1031Access™ program, which enables you to see your money in your own interest-bearing, segregated escrow account in real-time. Yes, 24/7. So why not give us a call? We would be happy to start your exchange today!

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