A 1031 exchange (aka: Starker exchange, tax-free exchange, like-kind exchange, delayed exchange) is a legitimate tax deferral strategy available to any taxpayer who meets all of the requirements set forth by the IRS. While §1031 applies to the sale of other like-kind business or investment property, it is most prevalent in the real estate industry.
When executing a 1031 exchange, the seller must reinvest 100% of the sales proceeds into a replacement (like-kind) property (or properties) of equal or greater value to receive the benefit of full tax deferral.
Qualified properties can be raw land, rentals, commercial buildings, and residential properties other than your personal residence. Qualified real property also includes oil and gas interests, mineral rights, and other unique property rights.
§1031 is a marvelous tool when a property has increased in value or been depreciated for tax purposes. It increases your flexibility, leverage, and buying power, and lets you change, diversify, or consolidate your investments. We encourage real estate owners to take advantage of these rules when applicable, and regularly assist them in making sure that they meet all of the important requirements in order to qualify for the transaction.
Our consultants at Richey, May & Co. provide advice on some of the more complex issues and questions regarding §1031, including:
- Meeting the qualified business or investment use tests
- Clarifying the identification (45 day) and exchange period (180 day) tests
- Using a qualified intermediary
- Possessing correct title to property
- Vacation homes as investment property
- Reverse (safe-harbor and non safe-harbor) exchanges
- Multiple property exchanges
- Build-to-suit exchanges
- Tenant-In-Common exchanges
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