Section 1031 Like-Kind Exchange Benefits: Defer Taxes & Reinvest More CashThe 1031 Exchange, authorized in 1921 by Section § 1031 of the Internal Revenue Code, is perhaps the most beneficial tax regulation ever implemented!
Section 1031 Like-Kind Exchange benefits are extensive! 1031 Exchanges benefit individual and organizational U.S. taxpayers involved in real estate transactions of nearly all shapes and sizes.
A Simple Definition of Section 1031 Like-Kind Exchange
Section 1031 of the Internal Revenue Code (IRC) allows an Exchanger (a U.S. Taxpayer) to defer normal income and capital gain taxes otherwise due on the sale of one or more properties (assets) when reinvesting in one or more like-kind properties.
Primary benefits of a 1031 Exchange
- Improve cash flow and lower overhead: keep proceeds that would otherwise be due in taxes working for you, Borrow less, reinvest more!
- With an ongoing Exchange program, realize reduced tax bills and greater control of cash flow fluctuations.
- If taxes eventually become due because you sell and do not complete another Exchange, you pay the deferred tax in future dollars that are worth less than today’s dollars (inflation effect).
Overview of a Typical Section 1031 Like-Kind Exchange
Step 1: You, the Exchanger, work with a Qualified Intermediary (QI) like EquipEx when selling one or more properties (assets). Instead of paying capital gains or normal income tax on the proceeds, you defer that tax exposure, possibly indefinitely.
Step 2: The QI accepts the proceeds from the sale on your behalf and holds them in a Qualified Escrow Account dedicated solely to your Exchange. One of the keys to a successful 1031 Tax Exchange is that you never take possession of the money – it’s received, held and disbursed by the QI, all with your written authorization and oversight for your protection.
Step 3: You initially have 45 days from the sale date to complete your Exchange by acquiring one or more like-kind replacement properties. If additional time is needed, you may complete an “Identification Step” within the 45 day “Identification Period”, for one or more replacement properties that you’re considering for acquisition, and gain an additional 135 days to acquire any or all of the properties identified. Thus, you normally have a total Exchange window of 180 days.
Step 4: Upon your instruction and written authorization, the QI distributes funds for your replacement acquisition(s). Once all funds have been used for replacement asset purchases, or the allowable Section 1031 timeframes have elapsed, your 1031 Exchange closes and any remaining funds are returned to you (and become potentially taxable as “boot”).
Step 5: Your tax professional files a form with your tax return that details the Exchange, including transfer of basis from the asset(s) relinquished to those acquired.
By successfully following IRC Section 1031 rules, a taxable event resulting from a sale does not occur and gain is deferred rather than realized.
Our Impeccable Qualifications To Serve As Your 1031 Intermediary
At EquipEx, not only are we focused exclusively on the facilitation of 1031 Exchanges, but we also meet or exceed all federal and state Qualified Intermediary requirements:
• Certified Exchange Specialist® on staff
• Exclusive use of a separate Qualified Escrow Account for every client (Exchanger)
• All 1031 Exchange funds are held in 100% liquid accounts at U.S.-based, FDIC-insured institutions.
• Professional Liability (E&O) coverage of $1 million per occurrence; four times the required limit.
• Cyber Liability coverage of $1 million per occurrence (not required by law, but in place for additional protection).
We are dedicated to the preservation of Section 1031 and to the proper, ethical facilitation of 1031 Exchanges. We have a Certified Exchange Specialist® on staff and actively support the Federation of Exchange Accommodators (FEA). We facilitate 1031 Exchanges encompassing all types real estate: office, retail, warehouse and industrial buildings, rental properties, fractional ownership interests (such as DSTs and TICs), water and mineral rights, raw land and more.
More Money For You… Less For The IRS
For decades, real estate investors have utilized 1031 Exchanges to trade up to more expensive or lucrative properties while deferring capital gain and normal income taxes. In recent years many individuals and business owners / decision makers in a wide variety of industries including real estate management/investment, construction, oil & gas, manufacturing and farming/agriculture, among others, have begun to put Section 1031 Exchanges to work for the betterment of their financial well being.
For more information on 1031 Exchanges, or to set up a free 1031 Exchange consultation to talk about how we can help you with your next real estate reinvestment, replacement or diversification, please call (720) 266-6095 in the Denver area, (855) 313-7080 nationwide, or e-mail moc.x1515737437epiuq1515737437e@ofn1515737437i1515737437.
EquipEx is located in the metro Denver, Colorado area. We handle 1031 Like-Kind Exchanges for U.S. Taxpayers located anywhere; for individuals and all types and sizes of businesses.
Click here for FAQs on 1031 Exchanges.