A 1031 exchange, also called a tax deferred exchange, a like-kind exchange or a Starker exchange can be used to defer the payment of capital gains taxes on an investment property.  Basically, a relinquished (sold) investment must be replaced with another investment with in a prescribed period of time.

The exchange essentials are defined by the IRS in Section 1031 of the Internal Revenue Code.

A Qualified Intermediary, an independent third party, is required to hold the exchange money during the transaction.

What Qualifies for a 1031 Exchange

• Property that is held for investment or for productive use in a trade or business.
• Vacation homes (under certain circumstances).
• Oil, Gas and Mineral interests.
• Tenants-in-Common transactions.
• Personal property as defined by the IRS (e.g.,office fixtures, data handling equipment, airplanes, buses, locomotives, vessels).

What DOES NOT Qualify for a 1031 Exchange

• Personal residence.
• Property used for personal purposes.
• Property held for resale.
• Partnership interests.

Four Basic Exchange Classifications

Direct or Simultaneous Exchange – (Least Common)
In this situation, both the relinquished and the replacement properties close at the same time.  Two parties exchange properties with each other.

Delayed Exchange -  (Most Common)
The closing of the relinquished property occurs before the closing of the replacement property.

Reverse Exchange – (reverse sequence of the delayed exchange)
The closing of the replacement property occurs before the closing of the relinquished property. In this case, the Q.I. holds the title until the second closing.

Improvement, Build-to-Suit and Construction Exchanges –  (Q.I. holds title)
Each type has different rules, but all involve improvements to the replacement property.

Timelines

45 Day Identification Period
This is the period of time given to IDENTIFY the replacement property.
Day one of this period begins on the day of closing on the relinquished property. The end of this period occurs at midnight of the 45th calendar day after the closing.

180 Day Exchange Period
This is the period of time given to CLOSE on the replacement property.
Day one of this period begins on the day of closing on the relinquished property. The end of this period occurs at midnight of the 180th calendar day after the closing or by the due date of your tax return for that calendar year.

Because there are so many rules and regulations pertaining to 1031 exchanges, we encourage you to call our Qualified Intermediary firm for a free consultation to discuss the individual needs of your exchange.

Incorporated in 1998

Disclaimer

All information contained in this website is provided as a matter of courtesy to our readers. Gibraltar 1031 Exchange, Inc., its officers and agents make no representations as to the completeness and applicability of the information.  As a Qualified Intermediary, Gibraltar 1031 Exchange, Inc., is prohibited from providing tax or legal advice.  Please consult your own independent tax or legal advisor concerning your specific circumstances.

Gibraltar 1031 Exchange is not affiliated with Gibraltar Securities or any of the Prudential Financial companies