1031 Exchange

During a time when most tax shelters have been abolished luckily one still remains. It is the tax deferred exchange. An exchanger continues his/her investment by selling one piece of property, which is the relinquished property /first leg, and then uses the proceeds to purchase a second property, which is the replacement property /second leg. Under Internal Revenue Code § 1031 the Exchanger may defer the gain realized by reinvesting in a similar “like-kind” property. In this way the taxpayer is able to reinvest 100% of the sales proceeds without paying any capital gains tax.

Once an Exchanger has transferred the relinquished property several requirements must be satisfied to qualify as a tax deferred exchange under §1031. The taxpayer must identify a like-kind replacement property within 45 days from the first closing and close on the replacement property(S) within 180 days of the closing of the relinquished property.