An investor using IRC Section 1031 can exchange raw land for a rental home, an apartment complex for a strip mall or rental houses for an office building. The use of the property is not the factor in determining the tax treatment.
 In a typical property sale, an owner usually has to pay taxes on any gain. In a properly executed Section 1031 exchange, the realized tax is deferred. These transactions are sanctioned under Section 1031 of the Internal Revenue Code and are often referred to as "1031 exchanges", "like-kind exchanges" or "tax-deferred exchanges". The IRS has specific guidelines that must be followed and a qualified intermediary provides for a safe harbor exchange.
Planning is critical to ensure a successful 1031 Exchange. Identifying replacement property with quality, characteristics, as well as the appropriate value, equity and debt ratios can be complex. Burton Realty & Development has the experience to find and close exchange properties expeditiously.
The Delayed 1031 Exchange
In a delayed exchange, the replacement property must be designated within 45 days of closing of escrow on the relinquished property and close within a total of 180 days.
Phase I begins when the exchange agreement is signed and the relinquished property is transferred to the intermediary, through an assignment agreement. The property is then sold to the buyer and the cash proceeds are deposited into an exchange account.
Phase II begins once a purchase contract is signed with a seller. The intermediary is assigned the contract and purchases the replacement property with funds held from the sale of the relinquished property.The exchange is completed when the replacement property is transferred back to the taxpayer pursuant to the exchange agreement.
The Simultaneous 1031 Exchange
In a simultaneous exchange, both properties close the same day.
Reverse Exchange
Under ideal conditions the investor will be able to sell the relinquished property first and then close on the replacement property. Sometimes circumstances make it necessary to acquire the replacement property before closing on the relinquished property.
Construction Exchanges
The construction exchange is an exchange where the intermediary retains ownership to the replacement property and improved it. Once construction is complete, the intermediary trades the property to the exchanger.
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