1031 Exchanges

At a time when most tax shelters have been abolished, one remains: the tax deferred exchange. An exchanger continues his/her investment selling one piece of property (the relinquished property /first leg and then uses the proceeds to purchase a second property (the replacement property /second leg). Under internal Revenue Code §1031, the Exchanger may defer the gain realized by reinvesting in “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 “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.