1031 Exchanges Explained: What This Tax Strategy Means for Investors

The goal of 1031 exchange for investors is simple: tax deferral.

1031 Exchanges Defined for Investors

A 1031 exchange allows an investor to sell and reinvest the proceeds in a similar qualifying property to defer paying any taxes.

When Can a 1031 Exchange Apply?

Investors use 1031 exchanges to sell real estate investment properties without tax consequences. When the investment property, also known as the relinquished property, is sold, the proceeds must go directly to invest in another real estate investment property.

Why Are 1031 Exchanges So Popular With Real Estate Investors?

The advantages of 1031 exchanges are understandably appealing. Who wouldn’t want to avoid paying any capital gains taxes on the sale of investment or business property?

How to Set Up a 1031 Exchange?

Real estate investors trying to navigate a 1031 exchange on both sale and purchase requirements find significant value in having a transaction coordinator's general oversight of the transactional details.

What Are the Required Steps for 1031 Exchanges?

1. Plan the transaction with professionals.

2. Execute the sale and purchase agreement of your investment property by a buyer.

3.  The buyer transfers the purchase money to your qualified intermediary to be held in escrow.

What Are the Required Steps for 1031 Exchanges?

4. You have 45 days to identify your investment property to purchase of at least equal value.

5. You must transfer the new purchase money through your qualified intermediary to the new seller and close within the next 180 days.