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Essay On 1031 Property Exchange

534 Words3 Pages

A 1031 tax-deferred exchange is a great way to save you capital gains taxes that you would be paying while selling a property. As 1031 exchanges help investors and real estate professionals save up on taxes, they get highly motivated to defer taxes on their real estate investment properties.
How does a 1031 real estate exchange work?
For a 1031 tax-deferred exchange to commence, the property owner should have a property to sell that meets certain characteristics which include the level of the sale price, equity level, and debt level. Once the property owner sells his property, a qualified intermediary (QI) holds the funds and is directed toward the purchase of a new property. The property sold is termed as relinquished property and the new …show more content…

Since property investors keep moving from one property to another, a 1031 tax-deferred exchange helps them on a greater scale.
Key facts about 1031 tax-deferred exchange
1. Net selling price: In order to avoid capital gain taxes on your relinquished property, you must spend an equal or higher net price on your replacement property.
2. Qualified properties: All real estate properties are eligible for a 1031 tax-deferred exchange provided that the property is held for investment or for some other productive purposes such as trade or business. Personal residences are not qualified for a 1031 exchange.
3. Use of a Qualified Intermediary (QI): A qualified intermediary (QI) is necessary for a 1031 exchange to happen. A qualified intermediary will be responsible to hold the funds that you gain from selling your relinquished property. The QI will then purchase a new property as directed by you. The QI is also helps you in preparing exchange agreement, escrows the proceeds after closing of a relinquished property, and coordinates the matter of exchange with all closing

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