1031 Tax Deferred Exchange Real Estate Transactions

A tax deferred exchange is simply a method by which a property owner trades one property for another without having to pay any federal income taxes on the transaction.

In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property.

In an exchange, the tax on the property is deferred until some time in the future, usually when the newly acquired property is sold.

These are sometimes called “tax free exchanges” because the exchange transaction itself is not taxed.

It’s called a 1031 exchange due to the name of the Internal Revenue Code: “Section 1031”. The requirements of section 1031 and other sections must be carefully met, and when an exchange is done properly, the tax on the transaction may be deferred.

Call, text, or email me today! 

I’d seriously enjoy having the opportunity to talk to you about your plans if you’re moving, or if you know someone who is considering a move, and needs some straight answers.

Some key dates and highlights of the history of the history of tax deferred exchanges:

Way back in 1921 we had the Revenue Act of 1921 which marked a change which allowed mainly simultaneous exchanges, or swaps of property.

In 1967 we had the Starker Case, which was instrumental in allowing delayed exchanges to occur.

Final Regulations in 1991 created safe harbors, and the timing of delayed exchanges was further clarified.

The Taxpayer Relief Act of 1997 disallowed personal property outside the US as a like kind exchange, and we saw Treasury Regulation 1031(h) addressing Real property not as like kind

Effective 9/15/2000, we saw Rev. Proc 2000-37, which among other things said we need an intermediary to take title to the ‘parked’ property

While there are a few additional milestones and changes to the code, the take-away here is probably that using a 1031 Exchange Intermediary that really knows how to handle things properly, and one that’s a financially strong business is a key ingredient in completing your exchange properly.

Zachary Epps, GRI, ABR, REALTOR®, Eco-Broker®, full-time RE/MAX professional, and author of

The Boulder Real Estate and Neighborhood Guide 

The Boulder Condo Guide 

The Home Buyer’s Handbook

Call, text, or email me today!… I’d seriously enjoy having the opportunity to talk to you about your plans if you’re moving, or if you know someone who is considering a move, and needs some straight answers.

Comments

Got something to say?