1031 Exchanges

1031 Exchanges, also known as Tax-Free Exchanges, is the IRS code for allowing people to sell one asset for another equal or larger asset of like kind (this is the key term) without paying any income taxes on the profit. Income taxes are deferred (not eliminated) until you finally sell the asset without replacing it with another like-kind exchange.

1031 Exchanges are very popular but require a lot of timing. First, once an asset is sold, the seller has 45 days to identify another property for replacement and a total of 180 days to close on the replacement property.

In order to use the 1031 Exchange rule, you must have all proceeds of a sale first go to an exchange agent who holds the funds until the replacement property is purchased. An exchange agent is usually a title or settlement company, however they must be designated to act as an exchange agent. Always consult an exchange expert to 1031 Exchange election to make sure your transaction qualifies under the 1031 Exchange rules.