What is a 1031 Exchange? |
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In a typical real estate sale, the taxpayer is taxed on any gain realized from the sale. However, Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business. |
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| What are the benefits of using a 1031 exchange versus selling? |
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A Section 1031 exchange is one of the few techniques available to postpone or potentially eliminate taxes due on the sale of qualifying property. By deferring the tax, you have more money available to invest in another property. |
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| What property can be exchanged? |
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Business real estate, investment property, speculative “raw land”, and rental real estate are usually interchangeable. Personal property and collectibles must be of a similar use as well. |
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| Are Section 1031 exchanges limited to only real estate? |
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No, any property that is held for productive use in a trade or business, or for investment, may qualify for tax-deferred treatment under Section 1031. |
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| Who is involved in an exchange? |
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- Exchangor/Taxpayer. The person selling the property.
- Buyer. The person buying your property.
- Intermediary. This is the role of All American 1031 Exchange. It ensures that all of the regulations are followed and places the funds in an escrow account until the exchange is completed.
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| Can I use my own attorney or accountant to be my intermediary? |
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No. The IRS states that if you have used your attorney or accountant within 2 years of your exchange they are disqualified from acting as your intermediary. |
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| Do I have to exchange one property for another simultaneously? |
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A simultaneous exchange need not take place. In a Forward Delayed Exchange, the Relinquished Property is sold and the Replacement property is purchased within 180 days following the sale of the relinquished Property. In a Reverse Exchange, the Replacement Property is purchased before the sale of the Relinquished Property. |
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| Can several properties be exchanged at the same time? |
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Yes, but these exchanges are more complicated and should be discussed with your tax planning professional. |
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| Can I take money out of the deal? |
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Any money taken out of the exchange is taxable. |
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| Is there any limit to the number of properties that I may identify? |
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You may identify any three properties and close on any or all of them without regard to value, or you may elect to identify more than three properties if their aggregate value does not exceed 200% of the relinquished property’s selling prices and close on any number of identified properties, or you can identify any number of properties if you close on 95% of the aggregate value of all of the properties you have identified. |
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| What happens if I change my mind on the identified Replacement Property? |
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You may change the identified replacement property at any time during the 45 day identification period. The property identified on the 45th day is the property that must be used for replacement. |
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| Can I extend the 1031 deadlines? |
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As a general principle, there are no extensions for either the 45 or the 180 day rules. |
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| How do mortgages affect exchanges? |
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Mortgages are considered boot and can be taxable. To defer taxes, a new mortgage of the same or greater amount should be placed on the replacement property at the time of purchase. |
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| Will an exchange increase my chances of an audit? |
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Not likely, there is no reported study that a 1031 exchange increases the exchanger’s odds of being audited. Furthermore, since tax deferred exchanges are specifically authorized by statute, an exchanger would have nothing to fear from an audit if the exchange is structured properly. |
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| What are the fees for a 1031 exchange? |
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The fees charged by All American 1031 Exchange vary based on the type of exchange and number of properties involved. Contact us with specifics on your proposed exchange for more details. |
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If I am closing tomorrow, is it too late to do an exchange? |
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No. Until title has passed to the buyer and money has been received, it is not too late to set up an exchange. |
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| Are 1031 exchanges difficult? |
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Entering into a 1031 exchange with an experienced qualified intermediary, such as All American 1031 Exchange, couldn’t be easier. The exchanger simply contacts All American 1031 Exchange and executes an exchange agreement. That the exchanger proceeds as if there is no exchange conducting its own investigations and negotiating with other parties, eventually assigning the executed purchase and sale agreement to All American who then steps in the shoes of the exchanger at the closing. The experienced staff at All American will contact the closing attorney to ensure that the closing complies with the requirements of the Code and Regulations. |
