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What is a 1031 Exchange?
A 1031 Exchange is a tax deferral tool that allows the seller of qualifying real property to defer taxes on an exchange transaction including state and federal Capital Gains, Depreciation Recapture, and Net Investment Income Tax, provided that the value of the property sold is reinvested in other qualifying real property. Multiple requirements must be satisfied for a valid 1031 Exchange.
Eligible properties for a 1031 exchange include:
Commercial real estate (e.g., office buildings, retail centers, warehouses)
Residential rental properties (e.g., single-family rentals, apartment complexes)
Vacant land held for investment
Industrial properties
Acquires relinquished property from the Exchanger and transfers it to the Buyer
Ensures Exchanger is not in actual or constructive receipt of any of the funds from the sale of the relinquished property
Acquires replacement property from the Seller and transfers it to the Exchanger
Agricultural land or farmland
Agricultural land or farmlandOil, gas, and mineral interests (in some cases)
Delaware Statutory Trust (DST) interests
Tenant-in-Common (TIC) interests
Long-term leasehold interests (30+ years)
What is the role of a Qualified Intermediary?
Using a Qualified Intermediary (QI) to facilitate an exchange transaction and conform the transaction to the applicable rules and regulations set forth in IRC §1031. The QI’s role includes the following:
Prepares all related documentation
Monitors the relevant time periods and provides input to the Exchanger regarding actions necessary to successfully complete the exchange