Commercial property including rental properties, condominiums, shopping centers, strip malls, timberland, gas and water interests, and land represent real property eligible for a 1031 exchange. One of the popular examples of 1031 Exchange replacement properties include Delaware Statutory Trusts or DST properties.
What does a 1031 exchange mean for a buyer?
A 1031 exchange allows you to sell one investment or business property and buy another without incurring capital gains taxes – as long as the exchange is completed according to IRS rules and the new property is of the same nature or character (like kind).
What can 1031 exchange funds be used for?
Under these rules, exchange funds can be used to purchase the replacement property, including making deposits, and to pay for typical costs related to the sale or purchase, such as prorated rents and broker commissions.
What are the four different types of 1031 exchange structures?
The types of exchanges are simultaneous exchange, delayed exchange, reverse exchange, and construction or improvement exchange. Any of these property exchanges will get you into a new property without having to pay a capital gains tax.
What is a safe harbor 1031 exchange?
The 1991 Treasury Regulations for tax deferred exchanges under IRC §1031 established four “safe harbors,” the use of which allow a taxpayer (Exchanger) to avoid actual or constructive receipt of money or other property for purposes of completing a §1031 exchange.
What is the difference between 1031 and 1033 exchange?
Section 1033 is tax deferral specific to the loss of property by a taxpayer and is therefore is referred to as an involuntary conversion. Section 1031 is the voluntary replacement of either real or personal property in an exchange of business or investment assets.
What do you need to know about the 1031 exchange?
Key Takeaways. A 1031 exchange is a swap of properties that are held for business or investment purposes. The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred. If used correctly, there is no limit on how many times or how frequently you can do 1031 exchanges.
What’s the difference between real property and 1031 exchange?
If we find the asset being relinquished does qualify for a 1031 Exchange, the next question is what the replacement property will be. As discussed previously, section 1031 applies to both “real property” and “personal property.” The primary difference between a personal property exchange and a real property exchange is the definition of like-kind.
Can a 1031 exchange apply to a former primary residence?
The 1031 provision is for investment and business property, although the rules can apply to a former primary residence under certain conditions.
What are the rules for an exchange of property?
The rules are surprisingly liberal. You can even exchange one business for another. But again, there are traps for the unwary. Classically, an exchange involves a simple swap of one property for another between two people. But the odds of finding someone with the exact property you want who wants the exact property you have is slim.
