Section 1031 of the Internal Revenue Code allows property owners to "
exchange" their property for other like-kind property. This makes it possible to
transfer the financial gain or loss that is realized from the sale of a property into another property and gain or loss will not be "recognized" at this time. The 1031 tax-deferred treatment of capital gains is one of the best real estate investor vehicles for preserving and building real estate wealth!
Conditions:
- Property Held for Investment:
The relinquished property must have been held for investment purposes. For many taxpayers, frequently the only real property that will not qualify is their personal residence.
- Exchanged Solely for Like Kind Property:
Like kind in real property transactions means real estate for real estate.
- Replacement Property Held for Investment:
The replacement property acquired in the exchange must also be acquired with the intent of holding it for investment.
- 45 Day Identification:
The Replacement Property must be identified and in writing, and delivered to the Qualified Intermediary no later than midnight of the 45th day after the closing of the Relinquished (exchange) Property (The "Identification Period").
- 180 Day Exchange Period:
The replacement property must actually be closed by the earlier of 180 days after the close of the relinquished property or the due date of the tax return (including extensions) of the year in which the relinquished property closed.
- Identification Rules:
In general, the taxpayer may identify up to three replacement properties without regard to fair market value of either the Relinquished or Replacement properties. They may acquire one, two or all three of those replacements that were identified in the exchange. If the taxpayer identifies more than three Replacement Properties, the fair market value of all the properties cannot exceed 200% of the fair market value of the Relinquished Property. Alternatively you may identify as many properties as you desire so long as you close and take title on 95% of the value of all identified properties.
The above information is excerpts from our 1031 Procedure Manual, a complete manual will be provided upon our request. We advise you to further confirm this information through consolation from your personal legal and financial advisors.
