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What is a 1031 Exchange?

Like Kind Exchanges, also known as tax deferred exchanges, are defined by Internal Revenue Code (IRC) section 1031. A 1031 Tax Deferred Exchange offers taxpayers one of the last great opportunities to build wealth and save taxes. By completing a 1031 Exchange, the Taxpayer (“Exchanger”) can dispose of investment or business-use assets, acquire replacement property and defer the tax that would ordinarily be due upon the sale.

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Since 1921, section 1031 has permitted a taxpayer to exchange business-use or investment assets for other like-kind business use or investment assets without recognizing taxable gain on the sale of the old assets. The taxes which otherwise would have been due from the sale are thus deferred.

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A 1031 Exchange allows investors to defer Federal capital gains tax, state ordinary income tax, net investment income tax, and depreciation recapture on the sale of Investment property if certain criteria are met including:

• • Buy replacement property for equal or greater than sold for and reinvest all proceeds

  • Identify replacement property within 45 days of close of sale

  • Purchase replacement property within 180 days of close of sale

  • Must Sell and Buy property that is considered “like-kind” to each other

  • Process must be handled by a Qualified Intermediary (QI)