1031 Tax Deferred Exchange
In a “1031 tax deferred exchange”, an asset – typically real estate – is sold and the proceeds are then reinvested in a “like-kind” asset. As per Section 1031 of the Internal Revenue Code, by conducting this exchange, the individual will not recognize any losses or gains. Capital gains taxes are deferred until property is sold and not exchanged. There are also certain requirements, such as:
- The exchanged property must be identified within 45 days
- All proceeds of the initial sale must be re-invested in the like kind property within 180 days of that sale.
- When exchanging property, you must do so for like-kind properties only. Real property has to be exchanged with real property, not personal property.
- 1031 Exchanges can only take place with investment property, commercial property, personal property or trade property (no personal residences)
- Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.
1031 Exchange Example
An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another property.
Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property.
If the same investor chose to exchange, however, he or she would be able to reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.
List of 1031 Qualified Intermediaries
Below is a directory of Qualified Intermediaries that can help individuals and businesses execute 1031 exchanges of all kinds.
Wells Fargo 1031 Exchange Services
California based qualified 1031 Exchange Service provider that helps develop your strategic plan to maximize the benefits of your 1031 exchange.
Safe Harbor Exchange
California based 1031 Exchange Qualified Intermediary insured by a Fidelity Bond for 5 Million Dollars Per-Occurrence.
All States 1031 Exchange Facilitator, LLC
National Qualified Intermediary for Internal Revenue Code Section 1031 Tax-Deferred Exchanges.
Asset Preservation, Inc. (API)
Qualified Intermediary with over 120,000 1031 exchanges executed
Exeter 1031 Exchanges Services, LLC
1031 Exchange Qualified Intermediary administering forward, reverse and improvement tax-deferred exchange strategies.
Starker Services, Inc.
Starker Services, is the nation’s oldest independent Qualified Intermediary firm, supporting all types of tax deferred 1031 exchanges