Resources
1031 calculator
To estimate potential tax savings by exchanging
To estimate potential tax savings
by exchanging
What is a Qualified Intermediary (QI)?
Navigating the intricacies of a 1031 exchange can be complex and time-consuming. That’s where a Qualified Intermediary comes in. A QI is a third-party professional who assists investors in executing successful exchanges while ensuring compliance with all IRS regulations. Their expertise lies in handling the intricate details of the exchange process, from preparing the necessary documentation to facilitating the simultaneous sale and purchase of properties. By leveraging the services of a QI, investors can streamline their exchanges, minimize tax liabilities, and focus on their investment objectives.
What is a Delaware Statutory Trust (“DST”)
Delaware Statutory Trusts (DSTs) as a Passive Income Option: While many investors actively manage their real estate portfolios, some prefer to transition to a more passive investment approach while still enjoying the benefits of real estate ownership. Delaware Statutory Trusts (DSTs) have emerged as an attractive option for such investors. A DST is a legal entity that enables multiple investors to pool their resources and invest in fractional ownership of large-scale, institutional-grade properties.
By investing in a DST, real estate owners can relinquish the day-to-day management responsibilities associated with property ownership while receiving consistent passive income. DSTs offer a diversified portfolio of properties, professional asset management, potential tax advantages, and regular cash flow distributions. Additionally, DSTs can be utilized as replacement properties in a 1031 exchange, allowing investors to defer capital gains taxes while transitioning to a more passive investment structure.
What Is A 1031 Exchange?
A 1031 Exchange, also known as a like-kind exchange, is a tax strategy available to investors that allows for the deferral of capital gains taxes when swapping one investment property for another. The term “1031 exchange” is derived from Section 1031 of the Internal Revenue Code (IRC) which was originally established in 1921.
Under Section 1031, if a real property held for productive use in a trade or business or for investment is exchanged solely for another real property of like kind, no gain or loss will be recognized for tax purposes. This means that investors can sell a property and reinvest the proceeds into another property of similar nature or character, without incurring immediate tax liability on the capital gains generated from the sale.
The key features of a 1031 exchange include:
1. Tax Deferral: By utilizing a 1031 exchange, investors can defer the payment of capital gains tax that would otherwise be owed upon the sale of an investment property.
2. Like-Kind Requirement: To qualify for a 1031 exchange, the properties being exchanged must be considered “like-kind” in the eyes of the IRS. While the term “like-kind” may be misleading, it refers to properties that are of the same nature, character, or class, but not necessarily of the same quality or grade.
3. Qualified Properties: Generally, 1031 exchanges are applicable to business or investment properties. Personal use properties, such as primary residences or vacation homes, do not typically qualify.
4. Timeline: There are specific time frames that must be followed in a 1031 exchange. Within 45 days of selling the relinquished property, the investor must identify potential replacement properties in writing. The purchase of the new property must then be completed within 180 days from the sale of the relinquished property or by the investor’s tax return due date, whichever is earlier.
It is important to note that while a 1031 exchange allows for the deferral of capital gains tax, it does not eliminate the tax liability altogether. The tax liability is merely postponed until a taxable event occurs, such as the subsequent sale of the replacement property for cash.
A 1031 exchange can be a valuable tool for investors looking to defer capital gains tax and strategically manage their real estate portfolios. However, it is crucial to consult with a qualified tax professional or intermediary to ensure compliance with the specific rules and regulations surrounding 1031 exchanges.
Downloadable Materials
Reverse (Parking) 1031 Exchanges
View & download our Reverse 1031 Exchange info sheet.
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