IRC §1031 TAX-DEFERRED EXCHANGES

Sellers of investment properties are advised to contact their tax advisors regarding the potential benefits of using an IRC § 1031 tax-deferred exchange rather than an outright sale.  When recommended, certain precautions must be taken to secure the benefits.  On is that the listing must specify the owner's intention to exchange (rather than sell).  Another is that the listing should specify that the buyer must be willing to participate in effecting the exchange. 

There are many requirements that must be followed to secure the benefits of an exchange, a qualified intermediary is among them. 

What Types of Properties Qualify for an Exchange?
Investment properties are the only properties that can be considered for an exchange.  These can be single-family residences, residential investment properties, commercial properties, vacant lots or land---but not a property purchased for or used for your own residence or second home.  In addition to its use, the intent for acquiring and holding the property influences whether it can qualify for a tax-deferred exchange. 

What  are the Benefits of an Exchange?
Preservation of working capital is the goal. 

What are the Limitations of an Exchange?
No cash, notes or other benefits may be taken from the closing of an exchange.  All proceeds must go into the replacement property.

What are the Time Constraints? 
Three properties generally may be identified as possible ones to be the replacement property.  This must be done within 45 days of the close of escrow of the exchange property.   The final exchange must close escrow within six months of that sale of the exchange property.

Disclosures

Inspections

Other Considerations

Donna States
Donna States
Broker Associate