1031 Exchanges

Thanks to IRC Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer capital gain taxes.

WHAT IS IRC SECTION 1031?

Section 1031 of the Internal Revenue Code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes if they purchase a “like-kind” property following the rules and regulations of the Internal Revenue Code. This allows investors to use the sale proceeds to leverage into more valuable real estate, increase cash flow, diversify into other properties, reduce management or consolidate holdings.

WHAT IS “LIKE-KIND” PROPERTY?

There is some confusion regarding what type of property qualifies for a §1031 tax deferred exchange. The Internal Revenue Code Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” “Like-kind” property can include, but is not limited to, any of the following, provided it is held for investment:

• Single Family Rental
• Duplex
• Apartment
• Commercial Property
• Raw Land

The success of any exchange is the use of a competent and experienced Qualified Intermediary. Hilltop Title can refer you to a Qualified Intermediary who will facilitate your transaction and structure, guide and document your exchange.