What is a 1031 Exchange?

What is a 1031 Exchange?

What Is a 1031 Exchange?

Whenever you sell a business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

We believe it is important for our clients to understand the process they are about to go through before they actually begin. For this reason, we offer details about a series of exchange basics on this page and a wealth of other reference materials on our site.

Types of 1031 Exchanges

1031 exchange rules offer four ways in which you can roll proceeds from one asset into another, without incurring capital gain penalties. All of these methods can be used, whether you are exchanging from one property to another, or are working with multiple assets.

1031 Exchange Rules & Guidelines

Both the relinquished and the replacement properties must be held for use in the taxpayer’s trade or business or for investment purposes. Personal residences are not eligible as relinquished or replacement properties.

Property Requirements

What Qualifies for a 1031 Exchange? Both the relinquished property you sell and the replacement property you buy must meet certain requirements. Both properties must be held for use in a trade or business or for investment.Both properties must be similar enough to qualify as “like-kind.” Finding the perfect property that qualifies is important.

1031 Exchange Timelines

Begins the day the Relinquished Property is transferred by the Exchangor. The Exchangor has 180 days to complete the exchange. The Exchangor has 45 days to nominate (identify) potential replacement properties and 180 days to acquire the replacement property. The exchange is completed in 180 days.

Must Use A Third Party

The exchange must be set up with a Qualified Intermediary (QI) (by execution of certain exchange documents) prior to the sale of the relinquished property. If these documents are not in place prior to closing, the transaction will be treated as a taxable sale and subsequent purchase, rather than an exchange.

Reporting 1031 Exchanges

You must report an exchange to the IRS on Form 8824, like kind exchanges, and file it with your tax return for the year in which the exchange occurred. If you do not specifically follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions.

How Much Does a 1031 Exchange Cost?

Granite has set the industry standard for cost and expertise. No extra or hidden fees on the purchase side. One flat fee covers the cost of the exchange.

Delayed Exchange

Sell first, and sell second
$400 Savings

$1,000

Standard delayed 1031 exchange

Reverse Exchange

Buy first, and sell second
Normally $8000

$5,000

Secure the replacment first

Improvment Exchange

Improve with exchange funds
Industry low price

$5,000

Buy and improve the property.

STRATEGIC PARTNERSHIPS

We are proud to have long-standing relationships with the intermediary community and have a designated team supporting relationships with escrow officers, lawyers, accountants, tax advisors, investment consultants and corporate finance professionals.