IRC 1031 Tax Exchanges

1031 Exchanges are a method for selling property and rolling your capital gains into another property. This allows the seller to roll the tax liability for the sale over to the new property, thus deferring the taxes untill the sale of the new property. There are many ways to benifit from completing an exchange and it is possible to save "a lot" of money over the long term through the use of multiple creative exchanges. The first step is to find a qualified intermediary to facilitate your exchange. You can easly find a Q.I. with an internet search, or I will be happy to provide you a list to choose from.

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How are Water & Mineral rights treated by the IRS in a Tax Deferred Exchange?

What are the 1031 exchange rules?

There are several components that are essential for 1031 exchanges. They include but are not limited to: working within the time period required between buying & selling a property; hiring an intermediary (1031 company) to handle the funds/paperwork between the two or more sales/purchases; finding your replacement property and confirming with your CPA the best route for you to take. The role of the Qualified Intermediary (QI) The QI is a person or entity that can legally hold funds to facilitate a 1031 exchange. To be qualified, the intermediary must not be relative or agent of the exchanging party. You may find that some title companies and attorneys act as an intermediary.

What is the purpose of a 1031 exchange?

A 1031 tax deferred exchange allows you to roll-over all of the proceeds received from the sale of an investment property into the purchase of one or more other comparable investment properties. At closing, proceeds are transferred to a third party - called a facilitator or qualified intermediary - who holds them until they are used to acquire the new property. With a 1031 Exchange, named for the Internal Revenue Code Section, you can defer the payment of the tax that is normally due on the sale. The deferment is like getting an interest-free loan on the tax dollars you would have owed for a cash sale. More equity is retained, and that helps you move into properties of higher value each time you perform a 1031 exchange. If you want to use the proceeds from the sale of your property to buy more business or investment real estate, a 1031 Exchange can provide you with more funds for investment than can be achieved through the investment of after-tax proceeds from the sale of your current property.

How A 1031 Exchange Works:

1. The old property and the new property must qualify as investment or business use. If the property qualifies, you can exchange any type of real estate for any other type of real estate.

2. From the date of closing on the old property, you have 45 days to determine a list of replacement properties you wish to buy.

3. You have 180 days from the date of closing to close the purchase of one of the properties submitted on your 45-day list.

4. You cannot control the money (no constructive use). By law, the money is held by a "Qualified Intermediary" (sometimes also called an "Accommodator" or a "Facilitator").

5. Whoever holds title on the previous property must also hold title on the new property.

6. To avoid taxable gain, you must reinvest all your proceeds and buy a property of equal or greater value. You must also avoid any "Net Mortgage Relief". That means you must take out a mortgage for the same amount (or more) as was on the original property.  I am experienced with 1031 exchanges and can assist you with your real estate investment needs. A tax professional should be consulted before buying and/or selling real estate.

1031 Exchanges are relitively easy and simple to perform. As long as the IRS rules for exchanges are followed you will never have a problem with the exchange being disallowed. I have personally been involved in hundreds of IRC 1031 exchanges over the last two decades, and my customers have all been pleased with the results. Please contact me for more information on 1031 Exchanges:

For information on current La Veta and Cuchara listings, contact Ed Kirkland at 719-679-1309 or ed@firewallranch.com.

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