The 1031 Exchange is a section in the IRS tax code that allows investors to defer paying capital gains taxes. If your are a real estate investor, this is a great opportunity to keep your gains when investing in a like investment property.
Bill Exeter with Exeter 1031 Exchange has been working with investors as a qualified intermediary for over thirty-four years. He provides specific steps and useful information for investors considering an exchange.
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How a 1031 Exchange Works
The seller contracts with a qualified intermediary prior to the sale of an investment property closing. The intermediary receives the money from the sale on the seller’s behalf. This keeps the seller from constructive receipt, which is a taxable event.
The intermediary applies the money to the new property.
You have 45 days to identify a replacement property and another 135 days to complete the purchase of the replacement property. The sale and purchase of the two properties must be completed in 180 days to avoid a taxable event.
You should contact a qualified intermediary during the sales negotiation when the sale seems likely to be completed.
Keys to a Successful 1031 Exchange
The key to a successful 1031 exchange is planning. It takes coordination with all of the interested parties; lender, broker, title agent, qualified intermediary, attorney, accountant, etc.
If you can Identify and tie up the replacement property prior to selling your property, the process tends to go much smoother.
Reverse 1031 Exchange
Can you purchase the replacement property before you sell your property? The 1031 Exchange can work in reverse. You will contract with the qualified intermediary to act as the buyer of the new property. When you sell your first property within the 180 days of the new purchase, the proceeds will go through the qualified intermediary and be applied to the replacement property.
How Much Does a 1031 Exchange Cost?
The price varies among qualified intermediaries. The full cost of the service ranges from $700 – $5,000 depending on the degree of difficulty and the service provider.
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