Exchanging as a Buying/Selling Solution

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Exchange Defined: A 1031 Exchange is a transaction involving the relingquishment of income or investment property and the receipt of like-kind income or investment property.  When certain criteria are met, as set forth in Section 1031 of the Internal Revenue Code, taxes on any gain realized from the sale of the relinquished proeprty are deferred.

Exchanging as a Solution:

Property Qualifications:

Relinquished and replacement property must be “held for productive use in a trade or business or held for investment.”

Relinquished and replacement property must be like-kind. All domestic real property is like-kind.

Full Tax Deferral Guidelines:

The purchase price of the replacement property must be equal to or greater than the sales price of the relinquished property.

All cash or other proceeds received from the sale of the relinquished property must be used to acquire replacement property.

Exchange Timelines:

The investor must complete their exchange during a legally mandated exchange timeline. The exchange timeline begins at the closing of the relinquished property and ends after 180 days or due date of the investors tax return for the year the relinquished property closed, whichever occurs first. A taxpaper can file an extension on their tax return due date to extend their exchange timeline but in no instance can the timeline exceed 180 days. By the 45th day replacement property must be identified in writing.

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