1031 Exchange

This is just a brief overview of what the 1031 Exchange requirements are. If you would like further details on how an exchange works, or on a specific scenario, please contact me at 850.520.2244 or dallas@jdallasre.com and I will be happy to put you in touch with one of the local exchange facilitators (QI) that we use. Please contact your personal tax adviser with any tax related questions.

 Diversification/Consolidation
 Leverage
 Management Relief
 Increased Income Potential
 Defer Taxes ~ Possibly Eliminate Them

 You have to “swap” properties.
1031 Exchanges now enable you to sell your property to someone totally unrelated to the person from whom you are purchasing the replacement property from.

I have to purchase something that costs more than what I am selling.
This is only true if you want to defer ALL of the capital gains tax. You can purchase a less valued property, and still retain some tax benefit.

 I can only exchange into the same type of property as what I am selling.
All real estate qualifies for a 1031 Exchange. This means that you can sell a vacant lot, and exchange into a residential property, commercial property, etc. and vice versa.

 Why bother? I will have to pay the tax sooner or later.
Not necessarily. Through careful planning, you can ensure that you don’t ever have to pay the tax.

The 5 basic rules of exchanging…

 Net Selling Price (NSP):
In order to defer all of the tax, the investor must purchase a property that is equal to or greater than the NSP of the relinquished property.

 Property Must Be Held For Investment/Business Use:
Investor may not exchange primary or second home, unless the second home is rented a portion of the year (consult QI for details). Aside from that, all real estate qualifies.

 180 Days:
Investor has 180 days to complete the exchange. This means that the investor must close on all intended purchases within 180 days of closing on the exchanged sale.

 45 Days:
Within the first 45 days of the 180 day period, the investor must identify up to 3 possible replacement properties. Only the properties identified as of day 45 will qualify for the exchange. (Restrictions apply to investors who wish to identify more than 3 properties)

 Qualified Intermediary:
Investor must use a Qualified Intermediary (QI) to facilitate the exchange. The QI may not be any agent or fiduciary of the investor (ie. Attorney, CPA, Real Estate Agent, etc.)