1031 Exchanges

When a taxpayer sells a property, they usually have to pay taxes on the difference between the property’s adjusted basis price and the sale price. Section 1031 of the Internal Revenue Code allows property owners a way to exchange business or investment property in return for property that is “like-kind.” It is not necessary for the taxpayer to find another person willing to directly swap property of like-kind in order to obtain the benefits of Section 1031. The 1031 exchange permits the property owner to reinvest 100% of the sale proceeds into replacement property, while deferring payment of the capital gains tax. In contrast, an actual sale of the property followed by the payment of tax would leave only 80% or less of the proceeds available for reinvestment.

In order to preserve the exchange element, a Section 1031 safe harbor restricts the property owner’s access to the sales proceeds of the relinquished property by requiring a qualified intermediary, trustee or escrow agent to hold the proceeds and disperse them for the replacement property. Beach Title Services can hold these proceeds and assist you in the documentation for a 1031 exchange.

A Section 1031 Exchange is not difficult, but there are very strict rules and timetables that must be followed. Beach Title Services’ real estate attorney is available to help you determine if all requirements have been met in order to successfully engage in a Section 1031 tax-deferred exchange.