The 1031 Exchange is named for the section of the Internal Revenue Code that permits the existence of this unique real estate transaction. The easiest description of the 1031 Exchange allows real estate owners to sell a property and legally defer any federal or state income tax when the proceeds are reinvested into another “like kind” property within the specified time frame. Key words in the 1031 Exchange are “defer taxes on capital gains” NOT “avoid taxes on capital gains”. However, the “1031” grants a flexibility on several levels to one’s investment. First, is the flexibility to better time and plan the payment of the tax owed on your capital gains over a longer time frame. Second, is the flexibility to exchange your investment into a wide variety of “like-kind” properties. “Like-kind” properties include any real estate property held for business or investment, such as; commercial real estate, raw land, rental properties and could even become one’s personal residence. A third flexibility in the 1031 Exchange is the ability to shift an investment around the country to take advantage of better business opportunities or personal geographic/climatological preferences. Another obvious flexibility in the 1031 Exchange is time required for the process to occur and even though there are specific rules set forth by the Internal Revenue Code there is flexibility in when you close on the property you own, etc.
As in any matter involving a degree of financial complexity, one must consult with reliable legal assistance to assure proper compliance with the tax codes and a proper fit in your personal financial/investment situation. The rules of the 1031 Exchange are being refined by on-going tax rulings so be sure to obtain reliable advice. On 1031 Exchanges and other real estate matters be sure to consult The Jason White Team to get a broad range of real estate investments and the backing of reliable advisors to fill your real estate needs.