Types of 1031 Exchanges
Benefits of a 1031 Exchange
THE ESSENTIALS OF A 1031 EXCHANGE ROBERT G . HETSLER
Types of 1031 Exchanges
Not all exchanges are created equal . Although they all produce the same result – deferral of capital gains taxes – there are several different ways to execute an exchange . Which one you choose depends on your personal circumstances .
Simultaneous Exchange Original property is sold and replacement property purchased at the same time and in the same escrow office .
Delayed Exchange The investor must identify replacement property within 45 days of selling relinquished property and acquire the property within 180 days .
Personal Property Exchange – An investor sells one nonreal estate asset and replaces it with an identical nonreal estate asset within 180 days .
Improvement Exchange The replacement property may be builttosuit , improved or modified to the buyer ’ s specifications . Also known as a Construction Exchange .
Reverse Exchange – This allows an investor to close on replacement property before the sale of the relinquished property is complete .
Benefits of a 1031 Exchange
IRS § 1031 is commonly referred to as the last available tax shelter for investment real estate . When a 1031 exchange is completed , the seller preserves all capital appreciation by avoiding the tax liability of both state and federal capital gains and recaptured depreciation . The full amount of the seller ’ s capital appreciation can then be applied toward the acquisition of a new investment or business property .
With a 1031 exchange , a seller is often able to afford a more valuable investment property than had the investor followed the traditional sale and purchase route that incurs harsh tax liabilities . A 1031 exchange also allow investors to replace an underperforming property with something that will generate better return on investment , all while deferring capital gains tax .