What is a 1031 Exchange?
A 1031 Exchange is a tax-deferral strategy that allows real estate investors to defer
paying capital gains taxes when they sell an investment property and reinvest the
proceeds into another similar property.
Who can do a 1031 Exchange?
Any taxpayer who owns investment property held for productive use in a trade or
business or for investment purposes can do a 1031 Exchange.
What properties qualify for a 1031 Exchange?
Generally, any real estate held for investment purposes or used in a trade or business
can qualify for a 1031 Exchange. Primary residences and properties held for personal
use do not qualify.
What are the timelines for a 1031 Exchange?
There are two critical timelines: the identification period (45 days from the sale of the
relinquished property) and the exchange period (180 days from the sale of the
relinquished property).
Do I need to use a qualified intermediary for a 1031 Exchange?
Yes, a qualified intermediary (QI) is required to facilitate the exchange. The QI holds the
proceeds from the sale of the relinquished property and uses them to purchase the
replacement property.
Can I exchange one property for multiple properties in a 1031 Exchange?
Yes, you can exchange one property for multiple replacement properties, as long as you
meet the identification and value requirements.
Can I use a 1031 Exchange for personal property?
No, 1031 Exchanges are only applicable to real estate held for investment or business
use.
Can I use a 1031 Exchange to buy a vacation home?
No, vacation homes and properties held for personal use do not qualify for a 1031
Exchange.
Can I use a 1031 Exchange to defer all capital gains taxes indefinitely?
While a 1031 Exchange allows you to defer paying capital gains taxes, you will
eventually pay taxes when you sell the replacement property, unless you continue to
exchange into new properties through subsequent 1031 Exchanges.
What happens if I do not meet the timelines or requirements of a 1031 Exchange?
If you fail to meet the timelines or requirements of a 1031 Exchange, you may be
subject to paying capital gains taxes on the sale of your relinquished property.
These are general questions, and specific circumstances can vary. It's advisable to
consult with a qualified intermediary or tax advisor for personalized advice regarding
1031 Exchanges.