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1031 Exchange Explained

A 1031 real estate exchange allows an investor to defer capital gains taxes on the sale of real property by exchanging it for like-kind property within no more than 180 days. The exchange most normally occurs in a series of steps in which proceeds from the sale of the original property are funneled through a Qualified Intermediary (QI). The use of a QI ensures that the seller will not have effective control of the sale proceeds during the exchange process. Generally speaking, any type of investment property can be exchanged; personal residences cannot be.

To give an example, an investor may decide to sell some vacant land. The land is sold using an assignable contract in which the proceeds are delivered to a QI who holds them in an interest-bearing account. Within 45 days from the date of the sale, the investor properly identifies a replacement property in writing.

The replacement property is an apartment building of equivalent or greater value. Working through the QI, the seller executes a contract to buy the replacement property. Escrow must close on the purchase within a maximum of 180 days from the date of the original sale.

Because the investor has deferred liability for capital gains taxes on the sale of the original property, he or she is able to invest the full amount of the sales proceeds in the new property, thus leveraging his or her investment and building wealth. TM 1031 Exchange facilitates these tax-advantageous real estate transactions by helping investors identify and locate suitable replacement properties within the necessary time frames. For more information on our services, call us at 1-877-4TM-1031 or send an email here

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