What is a 1031 Exchange?
Let’s start with a simple explanation of a 1031 exchange. Section 1031, as laid out in the Internal Revenue Code, is a tax-deferral strategy available to all taxpayers selling a property within the United States. Essentially, a 1031 exchange allows you to take the sales proceeds that would typically go to the government in capital gains taxes, and reinvest that capital into another property. Here’s a simple breakdown of the process:
You sell a piece of property (known as the relinquished property).
You identify new replacement property
You close on that new replacement property and move all of your net proceeds into that new property.
That makes the 1031 process seem exceedingly simple, but there are numerous rules and regulations that you have to abide by in order complete a successful exchange.
We can offer a solution to the replacement property problem by offering quality, income producing replacement property that allows the property owner zero management responsibility while maintaining a tax-sheltered income source.
The Typical Problem
There can be many possible problems with a 1031 exchange. For example, your exchange must be completed within the 45 days-to-identify and 180 days-to-close timelines. Failing to do so may create an unwanted taxable event.
Secondly, exchangers find it exceedingly difficult to find adequate, quality replacement property in the time allowed. A Simplified 1031 Exchange can solve those issues.
Savvy taxpayers hire a local exchange professional to facilitate all aspects of the exchange, organizing the information and process to ensure a successful exchange.
A Simplified 1031
Many people have heard about 1031 exchanges but are concerned about committing to a 1031 because they do not want to have a failed and possibly taxable exchange. A 1031 exchange professional can help answer the concerns and questions you have.