WHAT IS A 1031 EXCHANGE AND WHY SHOULD I CONSIDER IT?

• Immediate tax deferral
• Ability to acquire real estate with pre-tax dollars
• Long-term appreciation on tax deferral
• Estate Preservation (deferred gain may be forgiven upon death of taxpayer)
• Less management responsibility
• Greater selling and buyer power
• Increased income potential
• Relocation/expansion of business
• Diversification/consolidation of assets
• Conversion to primary residence and eventually qualify for primary residence exclusion

REQUIREMENTS OF A SUCCESSFUL 1031 EXCHANGE

1. The relinquished property and the replacement property must be held for business use or investment. Almost any kind of real estate can be exchanged through a 1031 exchange except a primary residence or a “flip.” There are special rules that must be met in order for a vacation home to qualify.

2. The new property must be identified within 45 days and acquired within 180 days of the closing of the old property. You are permitted to identify multiple properties using The Three Property Rule (identify up to three properties regardless of their combined fair market value) or the 200% Value Rule (if identifying four or more properties, their combined value must be 200% or less than the value of the relinquished property).

3. Legal title to the relinquished and replacement properties must be held in the same owner.

4. The replacement property must be of equal or greater value and equity than the relinquished property. A trade down in either equity or value is taxed dollar for dollar.

5. A Qualified Intermediary (QI) is needed to facilitate the transaction. The QI prepares all required exchange documentation, provides written reminders of time deadlines, coordinates details with all parties and holds exchange proceeds in exchange account until the replacement property is acquired.