1031 Tax Exchange Information
A 1031 tax deferred exchange allows you to roll-over all of the proceeds
received from the sale of an investment property into the purchase of one or more other
like-kind investment properties. A 1031 exchange is possible when you sell real estate held
for investment purposes. It cannot be used for the sale of your personal residence. The exchanged
properties must be like kind. For a real estate exchange this means real-property for
real-property, but not necessarily land for land or a rental house for another rental house.
You should take a look at the IRS rules for specific rules about what types of properties
qualify as like kind. You can exchange a single property for multiple
properties, or purchase one property from the proceeds of several. Proceeds not used to
purchase new investment property are taxed as a cash sale. In your contract
to sell or purchase a real estate it must contain wording that shows an intent to perform a
1031 exchange. A real estate attorney or your qualified intermediary can help you with the
right wording for such contracts. Be very careful to compare the services,
costs, and references of several qualified intermediaries before selecting one to handle
your 1031 exchange. The work they do is crucial to the success of the exchange - make sure
it's a trustworthy and experienced company or individual.
You should ask your agent as many questions as necessary to make you feel
comfortable with the process. A tax deferred exchange is not difficult to do, but there are
specific steps you must follow to make sure every aspect of the sale and purchase complies
with US tax laws. |
