| What is a 1031 Tax-Deferred Exchange? |
| A: |
When selling property, a taxpayer will be responsible for taxes associated with any gain realized from the sale. However, through a 1031 Exchange, the tax on the gain is deferred until some future date or possibly not at all.
A 1031 Exchange is a technique by which a property owner trades relinquished property(ies) for replacement property(ies) that are considered like-kind, while having the ability to defer the payment of some federal and state taxes on the transaction. |
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| What are the benefits of Exchanging versus Selling? |
| A: |
A 1031 Exchange is a method available to defer taxes due on the sale of qualifying properties.
By deferring the tax, a taxpayer will have more money available to reinvest in another property.
It could be considered an interest free loan from the government, in the amount you would have paid in taxes.
Any gain from depreciation recapture is postponed along with some state taxes.
A Taxpayer can consolidate, diversify or relocate investment properties without paying tax on the gain. |
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| Are there different types of 1031 Exchanges? |
| A: |
Yes...there are different types of exchange structures available to taxpayers. Here is a brief list of the most common types of exchange transactions--Simultaneous, Delayed, Build-to-Suit, Improvement and/or Construction, Reverse and Personal Property Exchanges. Taxpayers can benefit from using one type of exchange or a combination of more than one in certain circumstances. |
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| When can I access the exchange funds to take money out of the exchange account? |
| A: |
Once the exchange proceeds are deposited into the exchange account, the funds can only be released towards the acquisition of qualifying property. The taxpayer cannot receive any of the exchange proceeds until the exchange is complete and in accordance with the strict time periods outlined in the Regulations. If a taxpayer wants to receive any portion of the proceeds, this must be completed prior to the closing and/or the funds being deposited with the Qualified Intermediary. |
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| Are there time restrictions on completing a Section 1031 exchange? |
| A: |
Yes, a taxpayer has 45 days from the date the relinquished property is transferred to properly identify the replacement property(ies). The exchange must be complete by the date that is 180 days after the transfer of the relinquished property, or the due date of the taxpayer's federal tax return for the year in which the relinquished property was transferred, whichever is earlier. To receive the benefit of the full 180 days, the taxpayer can file for an extension of their tax return. |
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