1031 Exchanges
A 1031 exchange (also known as a like-kind exchange or a 1031 tax deferred exchange) is a tax-deferral strategy under Section 1031 of the U.S. Internal Revenue Code. It allows real estate investors to defer paying capital gains taxes when they sell one investment property and reinvest the proceeds into another "like-kind" property.
1031 exchanges require the use of a Qualified Intermediary (QI), as investors cannot directly receive the proceeds from the sale. Instead, a QI holds the funds and facilitates the transaction.
Deferral of Capital Gains
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You can defer paying taxes on capital gains as long as you reinvest the proceeds into a like-kind property.
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This allows you to keep more capital working for you instead of losing it to taxes.
Key Requirements
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Both properties must be held for investment or business use
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Must follow strict timelines:
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Identify a new property within 45 days of selling.
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Close on the new property within 180 days.
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Use a Qualified Intermediary to hold and transfer funds.
Results
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Grow and diversify your portfolio
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"Reset" depreciation
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Strategically cull less desirable properties
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Take advantage of a step-up in basis
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Greater leverage and increased cash flow as a result