At 1031 Exchange Intermediaries, we specialize in helping real estate investors navigate the complexities of 1031 exchanges. Whether you’re selling residential or commercial property, understanding how 1031 exchanges work can save you thousands of dollars in capital gains taxes, allowing you to reinvest in new properties while deferring taxes.
When working with our team, we’ll walk you through the essentials of 1031 exchanges, how an intermediary simplifies the process, and the benefits of working with an experienced team to ensure a smooth transaction.
To learn more about how our 1031 exchange intermediary team can help you maximize your investments, contact us online or by phone at 314-822-8100 to develop your strategy.
What is a 1031 Exchange?
Also referred to as a “like-kind exchange”, a “tax-deferred exchange” or a “Starker exchange” all of these terms refer to and are based on Section 1031 of the U.S. Internal Revenue Code. Section 1031 provides a powerful tax-deferral strategy that allows real estate investors to exchange a like-kind property and into another like-kind property. The key benefit of an exchange is the ability to defer the capital gains tax and depreciation recapture which would be recognized in a typical sale of the real estate. Utilizing an exchange allows you to preserve and grow the value of your investment by keeping more of your money working for you.
Key Features of 1031 Exchanges
- Like-Kind Property: The properties involved in the exchange must be “like-kind,” meaning they are of the same nature or character, but they don’t necessarily have to be identical. For example, you can exchange a residential rental property for commercial property or vice versa.
- Tax Deferral: The most significant advantage of a1031 exchange is the ability to defer capital gains tax and depreciation recapture. These taxes can easily amount to tens of thousands of dollars. Utilizing this tax deferral strategy allows you to grow your real estate portfolio by keeping your money working for you.
- Investment Focus: To qualify under Section 1031 the real property being exchanged must be held for investment or used in a trade or business
Why Work with a 1031 Exchange Intermediary?
Navigating the rules and requirements of a 1031 exchange can be complex, and mistakes can be costly. Having an experienced and knowledgeable team is a key to satisfying the requirements for a successful tax deferred exchange.
At 1031 Exchange Intermediaries we help you understand and satisfy:
- Compliance and Documentation: The IRS has created a “safe harbor” for taxpayers considering a like-kind exchange. The safe harbor provides a guide to taxpayers in the form of regulations. By complying with these regulations the taxpayer can rest easy knowing that their exchange and the consequent tax deferral is assured. We review the facts of your exchange and prepare a set of documents intended to comply with the safe harbor requirements. These documents serve as evidence of your compliance with the safe harbor requirements. Proper documentation is essential to obtaining the desired tax deferral.
- Avoiding Common Pitfalls: Many investors unknowingly overlook critical steps, such as engaging a qualified intermediary or failing to identify property within the 45-day window or failing to satisfy the 180-day deadline for completing the exchange. Our team will make sure you have access to the critical dates and keep your exchange on track.
- Expertise and Guidance: 1031 exchanges have specific rules, deadlines, and procedures that need to be followed precisely. Our team is here to help you through the entire process, making sure you are aware of the requirements as well as the limitations of an exchange. Please be sure to consult your tax and legal professionals for specific advice related to the advisability and outcomes related to your intended tax deferral under Section 1031.
The 1031 Exchange Process: Step by Step
A successful 1031 exchange involves several key steps. Here’s a breakdown of the 1031 exchange timeline and process:
1. Selling Your Property
Once you have made a decision to sell an investment or trade/business property you should schedule a free consultation to discuss your potential exchange. If an exchange is a viable option the 1031 Exchange Intermediaries team will gather additional facts related to the sale to draft a set of exchange documents. The exchange agreement will ensure that the taxpayer does not have actual or constructive receipt of the proceeds from the sale which is one of the key requirements for a successful exchange.
2. Identifying Replacement Properties
You have 45 calendar days (starting with the day following the closing of the sale of your relinquished property) to identify potential replacement properties. The identified property must be: "like-kind" and described sufficiently to distinguish it from any other property. Additional requirements may apply depending on your type of exchange.
3. Completing the Exchange
Once you’ve identified like-kind property, you must complete the exchange within 180 calendar days (starting with the day following the closing of the sale of your relinquished property) or the due date for the taxpayer’s return, whichever occurs first. If you are a calendar year taxpayer and close the sale of your relinquished property on or after October 15th in a given year, this is critically important to understand. To maximize the tax savings the replacement property should be of equal or greater value with equal or greater equity, compared to the property you sold.
4. Finalizing the Transaction
At the conclusion of your exchange you should have a complete set of documents for each relinquished and replacement property which was included in the exchange. In the event that there are any funds remaining in escrow at the conclusion of the exchange, those funds are returned to the taxpayer. The taxpayer will report the exchange on their tax return for the year of the sale using IRS Form 8824. The taxpayer will want to maintain these exchange records in the event of an audit. 1031 Exchange Intermediaries will maintain copies of these documents for five years following termination or completion of the exchange.
Why Choose 1031 Exchange Intermediaries?
At 1031 Exchange Intermediaries, we understand that the success of your real estate investments depends on making informed decisions. Our team offers personalized, expert services to guide you through every stage of the 1031 exchange process. We’re committed to ensuring compliance with IRS rules, maximizing your tax benefits, and helping you expand your investment portfolio.
Whether you’re new to 1031 exchanges or a seasoned investor, we can provide the support and resources you need. We’ll help you avoid common mistakes and maximize the tax deferral benefits, so you can focus on growing your real estate assets. Learn more about why you should trust our 1031 intermediary team.
Contact Us Today to Get Started on Your 1031 Exchanges
Ready to explore the tax-deferral benefits of a 1031 exchange? Contact the expert team at 1031 Exchange Intermediaries to schedule a consultation. We’ll discuss your investment goals and guide you through the process of starting or completing your 1031 exchange. Let us help you unlock the full potential of your real estate investments!
