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1031 Exchange Rules

Pivot Professional Partners is an alternative and reliable 1031 exchange advisor firm focused on 1031 Exchanges in the form of DST (Delaware Statutory Trust) Investments. If you are considering a 1031 exchange, you must know the existing 1031 rules.

What is a 1031 Exchange?

Internal Revenue Code (IRC) section 1031 defines like-kind exchanges, usually referred to as tax-deferred exchanges. One of the last great chances for taxpayers to increase their wealth and reduce their tax burden is through a 1031 Tax Deferred Exchange. It allows the taxpayer (the "Exchanger") to sell assets used for investments or commercial purposes, buy a new investment property, and defer the taxes they would otherwise owe at the time of sale.

1031 Exchange Rules- What you need to Know

Since 1921, section 1031 has authorized taxpayers to exchange their investment or business-use assets for other business-use or investment assets without tax liability on the sale of the older assets.

If specific requirements are met, a 1031 exchange enables an investor to defer paying federal capital gains tax, net investment income tax, state regular income tax, and depreciation recapture on the sale of an investment property. These are the 1031 Exchange rules you need to be aware of:

  • Purchase a replacement property for the same amount or more than the property you sold, then invest the entire profit.
  • Find a suitable replacement property within a replacement period of 45 days of the sale's closing.
  • Invest in new qualified replacement property within 180 days of the sale's closing.
  • Investment real estate must be sold and purchased in "like-kind" transactions. 
  • Qualified intermediaries (QIs) are the only entities authorized to handle these transactions.

Reasons to Exchange Property

There are many benefits to choosing a 1031 exchange, including the following:

  • Defer Payment of Federal, State, and Depreciation Taxes
  • Consolidate or Diversify Your Real Estate Portfolio
  • Boost Cash Flow
  • Change Property Types (Land, Office, Retail, Industrial, Multi-Family, Residential, Easements)
  • Enter diverse real estate markets (Exchange property anywhere within the United States & Territories)
  • Build and Preserve Wealth
  • Establish Future Heirs (Estate Planning)
  • Boost your purchasing power

Retain a Qualified Intermediary for Your 1031 Exchange

A "1031 Qualified Intermediary" (QI) is typically needed if you, as a property owner, want to sell an investment property to defer taxes via the 1031 tax-deferred exchange. The services of a QI are employed to complete the required paperwork, hold your exchange funds safely, and purchase your new investment property before transferring the relinquished property.

Although QIs are not subject to federal regulation, there is an industry trade association, the Federation of Exchange Accommodators (FEA), for the sector. Many trustworthy and reliable QIs are members of this association.

Pivot Professional Partners – A Reliable 1031 Exchange Advisor

You shouldn't rush your decision to go ahead with a 1031 exchange because there is a lot at stake. We can help if you're considering real estate investment through a 1031 Exchange using a Delaware Statutory Trust (DST) to defer capital gains taxes and generate long-term gains. Consider us your 1031 advocates; we are here to bring clarity so you can get the most out of your investment property transaction.

Using this Contact Us form, you can schedule a consultation with the Pivot Professional Partners team regarding 1031 or 1033 exchange rules and determine whether your property qualifies. If you prefer to discuss your requirements regarding the 1031 Exchange process over the phone, feel free to speak with our experts at (631) 275-1444. While a 1031 is considered a tax strategy, we are not tax advisors, and you should consult your tax professional before investing.