here . . .
who have only heard of 1031 exchanges
know this much: it has something to do with real
estate. Basically, a 1031 exchange works like this:
- first, you call a 1031 'qualified
intermediary,' (or 'Q.I.'). They start the exchange
process for you.
- work with a realtor to sell your
- at the closing, the money goes straight
from the closing to your QI. (I explain
- work with a realtor to buy a new
- when you finally close on your new
property, the QI sends your money to the closing.
Schuler for The 1031 Exchange
In this way, you buy and sell real
estate without handling any cash. Technically, in the
eyes of the law, you're actually TRADING properties
with someone. If you possess, hold or control the money
at any time between the sale of your old property and
the purchase of your new, it becomes taxable to you.
That's why when you sell your old property, the money
bypasses you and goes straight from the closing to
the QI. Later, it will go straight from the QI to the
closing of your new property.
Why not just buy and sell outright?
Because when you sell something, your fingers touch
dirty taxable mammon. At least fifteen percent of
your hard earned cash goes to the federal government
as capital gains tax. And many states pile on their
own capital gains tax on top of that! Even if you
reinvest the money right away and purchase something
else immediately, the IRS will still see that you
touched money. And you will be taxed for holding
it, even if just for a nanosecond.
Enter the 1031 exchange: this is where
the QI comes in who handles this process for you.
Using a QI, by the way, is the law; there are no do-it-yourself
1031 exchanges. Your goal is to sell and buy without
touching money so you don’t get taxed on it.
If you act as your own QI and handle your own money,
then you touch it, and therefore pay tax. But let someone
ELSE touch the money—the QI—then you don’t
Isn't that tax evasion?
Actually, no. IRC §1031 is named after THAT SECTION
of the IRS tax code ("IRC §1031" means
= "Internal Revenue Code Section 1031").
It’s not illegal because the IRS wrote it! You
play by their rules, you pay no tax, and you keep a
Does MY money from the sale
of MY property actually go to the QI?
YES! And due-diligence is key here. The QI legally
must hold the cash from the sale of your investment
real estate. That’s why being careful to choose
a reliable QI with a good reputation is essential.
We here at 1031 Exchange Experts are
constantly developing ways to keep your money safe
and to earn your faith in us. We invented an often-imitated
system called 1031Access™ for
our clients so they can SEE their money in their password-protected
account on the Internet. Remember, the IRS will pour
a flamethrower on your exchange if you TOUCH or CONTROL
that money in any way. But they didn’t say you
watch it. The 1031 Exchange Experts invented this system
so you can see your money the whole time we are holding
it for you.
This is really a very simplified explanation
of how a 1031 exchange works. In actuality, it can
get a lot more complicated. But here’s the good
news: IT IS OUR JOB to make it simple for you, which
is just what we do. Give us a call and let us sweat
out the hard stuff. Talk to us, tell us your story,
and let’s see if there’s a 1031 tax-saving
real estate strategy for you! They don’t call
us ‘The Experts’ for nothing!
But enough about us.
What can we do for you?
Nationwide, toll-free: 866-694-0204