1031 Tax Free Exchange

Seller, Real Estate News

The 1031 is an IRS designation for the set of guild lines/rules/laws pertaining to doing a property exchange where technically no money is really moved. Sounds tricky, and it can be if you are not fully informed on the particulars. It can also be an alternative to conventional sales/purchase methods.

What is a 1031 Tax Free Exchange?

It is most often used in business but can be applied to residential homes. It is a method of picking up all the equity you have in a property or a collection of properties or properties and other tangibles and trading the ‘lot’ of them for another property of equal or greater value. It is a way to help shelter any capital gains from the sale of the other properties when acquiring the target property.

This is, of course, an over simplified overview of the process. You will want to discuss the particulars with your local Jacksonville FL real estate agent, real estate attorney and or accountant.

How Long Do I Have to Complete an Exchange?

Once the target property has been identified and the process is started you need to be able to wrap up the process in 180 days from the date you start. It’s part of the particulars set out to control the use of this kind of transaction and there is little leeway in the deadlines.

Staying on top of the transaction is necessary. Talk frequently with the professionals you have chosen to work with you on this. Letting a deadline slip can quash a deal that you have worked very hard to accomplish.

Like-Kind and Other Regulations

‘Like-kind’ is a term that means properties of a similar use. Business/Commercial must be used for Business/Commercial and Residential for Residential.

Planning is a must. If your ‘end date’ for the transaction falls on a major holiday the IRS is not required to give extensions.

If you mis-identify the target property (i.e. Condo 324A is noted in the documents instead of 324B) and you do not correct the error within the allotted time period for identifying the target property you may have to start again from square one.

Is This Really Worth All the Trouble?

For the purchaser who has sizable capital gains tax looming it can be a great boon, but determining whether or not the process would benefit you should be discussed with financial and real estate professionals, perhaps one who specializes in Duval County real estate.

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