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A 1031 Exchange is a method,
sanctioned and regulated by the IRS, of exchanging one income
property for another of at least the same value without having
to pay any capital gains tax at the time of the exchange
transaction. Such taxes will only become payable when the
property holding is eventually liquidated. Section 1031 of
the Tax Code states,
“No gain or loss shall be
recognized on the exchange of property held for productive
use in a trade or for investment, if such property is
exchanged solely for property of a like kind which is to be
held either for productive use in a trade or business or for
investment”.
The IRS sets some very specific rules
concerning how such transaction shall take place to qualify as
a like-kid exchange. These include:
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The property to be purchased must
be of equal or greater value than the one being relinquished
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All of the net equity from the
relinquished property must be re-invested in the new
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You must place at least as much
debt on the new property as was on the old one.
The IRS also specifies how long you
can take to undertake an exchange transaction:
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From the date of the sale of the
property being relinquished, one has 45 calendar days to
identify a new property or properties
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Again, from the date of closing the
sale of the relinquished property, one has 180 days to close
the purchase of the new property.
Very important to note is that the
money from the sale of the relinquished property can not even
cross the palm of the exchanger. It must be held by a
recognized intermediary.
Bottom line – get professional advice
from your tax accountant.
Crown Capital would be delighted to
help you finance your 1031 exchange property. Depending on
the nature of the property being purchased, Crown Capital can
put you into non-recourse financing with up to 30 year
amortization, a fixed rate period up to the length of the
unexpired portion of any lease at interest rates below prime
and based on 10 year treasury yields
And our sister company Crown
Commercial Realty LLC can work with you for the sale and
purchase of such properties.
Click
here for the Crown Realty web site.
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1031
Tax-Deferred Property Exchanges.