How Much Is Your Home Worth?

1031 Exchange

Commercial & Investment Property

Overview

1031 Exchange Defined

Section 1031 of the IRS tax code offers real estate investors one of the last great investment opportunities to build wealth and save taxes. By completing a 1031 Exchange, an investor (taxpayer) can defer the capital gains taxes recognized on selling investment property by reinvesting those proceeds into another like-kind investment property. The regulations that govern 1031 Exchanges are very specific and must be followed to have a successful exchange.

Reasons To Exchange

  • Defer Taxes: Federal, State, 3.8% Healthcare & Gain Due to Depreciation

  • Diversify or Consolidate a Real Estate Portfolio

  • Increase Cash Flow

  • Switch Property Types (Land, Industrial, Multi-Fam, Office, Retail, Residential, Easements)

  • Get Into Other Real Estate Markets (Exchange Anywhere within the U.S. & Territories)

  • Build & Preserve Wealth

  • Increase Purchasing Power

  • Set Up Heirs for the Future (Estate Planning: Stepped Up Basis)

Important 1031 Concepts

Purchase Equal or Greater in Value (Less Non-Reoccurring Closing Costs)

IPX1031 Can Handle All Types of 1031 Exchanges, Including: Delayed, Reverse & Build-to-Suit

Identify Replacement Property within 45 Calendar Days of the Close of Escrow & Complete All Purchases within 180 Calendar Days of the Close of Escrow

Use ALL of the Equity & Replace the Value of Debt » Debt Can Be Replaced with New Debt, Seller-Financing and/or Cash

Maintain the Same Taxpayer Throughout the Exchange

Partnership & Related Party Issues

» IPX1031 Has Strategies to Assist

Why Ipx1031

  • Owned by Fidelity National Financial (NYSE: FNF)

  • Nationwide Locations

  • $100M Fidelity Bond

  • $30M E&O Insurance

  • $50M Written Performance Guaranty

  • Segregated Accounts

  • Knowledgeable Staff

  • Attorneys & Certified Exchange Specialists (CES®)

  • Full Service Qualified Intermediary

  • Superior Customer Service

1031 Exchange or Sell

How Capital Gains Tax Rates Affect Investment Sales

Without a

1031 Exchange

Up to

30%

Taxes

  • 15% Cap Gains tax - OR - 20% Cap Gains tax IF taxable income is over $533,400 (single) or over $600,050 (married, filing jointly)

  • 3.8% Affordable Healthcare tax IF adjusted gross income is $200K+ (single) or $250K+ (married, filing jointly)

  • 0% - 5.9% State tax rates

  • 25% tax on gain due to depreciation

With a

1031 Exchange

0%

Taxes

Let’s Discuss Your 1031 Goals

Tailored strategies for your 1031 exchange and investment needs.

1031 Guidelines

Held for Investment

Owned & treated as investment property.

Qualified Intermediary Requirements

Must use QI who is neutral party not advising client in last 2 years. All monies held until exchange closes.

Identification Rules

45 Days To identify.

  • 3 Property Rule

  • 200% Rule

  • 95% Exception

Reinvestment Requirements

To have a fully deferred exchange, buy equal-or-greater in value, reinvest all proceeds, and replace the value of debt from Relinquished Property.

Closing Rules

180 days to acquire properly identified properties.

Title Requirements

Both Relinquished and Replacement Properties must use same taxpayer ID.

Faq's

1031 Exchange Answers To

Commonly Asked 1031 Questions

Qualified Intermediary

Is a Qualified Intermediary (AKA accommodator or QI) needed?

Yes. To avoid a taxable sale of the Relinquished Property, an intermediary should be utilized in virtually every 1031 transaction. In addition, the Exchanger must enter into written agreements with the QI before the Relinquished Property is sold.

Like Kind

Can I sell my rental house and buy a 4plex? Can I sell my vacant lot and buy a rental house?

Yes, you can buy ANY kind of business or investment real estate, anywhere in the US. You can sell the rental house and buy apartments, commercial, industrial, mini storage, vacant land, agricultural, etc.

Timing

Can I buy the Replacement Property first?

Yes, but that is called a “Reverse Exchange”, which is more expensive and more complex.

Time Deadlines

Do I have to be in contract by the 45 days?

The identification form only requires that you give us the addresses to the properties you are identifying by the 45th day. However, if the property is sold or unavailable on or after Day 46, you should have an alternative in place. So, it is recommended that you are in a firm contract by then.

Do I have to buy from the properties I’ve identified?

Yes. During the 45 days you can change what you’ve identified, but once your identification period has expired, you must buy from only that list. No substitutions or changes after day 45.

Can I get an extension on the 45 day identification period?

No, unless you are eligible for an extension due to a federally declared disaster, the IRS doesn’t have any provisions for extensions or exceptions – not even to the next business day if the deadline falls on a weekend or holiday. The best way to get more time is to start looking for your Replacement Property well before the closing of your sale property or to extend the closing date on your sale property.

Money

Do I just need to reinvest my profit?

No. To defer all your taxes, you need to replace the entire net sales price of what you sell, not just the gain. [“Net” refers to the sales price less the closing costs, such as escrow, title, and broker fees. Do NOT subtract the loan balance.]

Do I have to replace my existing loan amount?

Yes, you are not just reinvesting the equity, you need to buy equal to or greater than the entire net sales price.

Do I have to get another loan?

You need to replace the VALUE of the loan. Either with another loan or with additional cash from outside of the exchange.

Vesting And Title

Do I need to buy the Replacement Property in the exact same vesting as I sold?

No, however it needs to be the same TAXPAYER. Accordingly, you can sell the property in your revocable trust and buy it in your name because you are the same taxpayer. However, you cannot sell as a partnership and buy as individuals since those are not the same taxpaying entities.

Moving In

Can I move into the property I buy?

The Replacement Property needs to be purchased with the intent of being a business or investment property. In 2008 the IRS issued a safe-harbor (Rev. Proc. 2008-16) that defines how to treat your Replacement Property for the two-year period after the exchange in order to safeharbor your exchange. A common belief is that you can then convert it to personal use. However, any type of conversion should be discussed with your tax advisor first.

Family & Related Parties

Can I rent the property to my child or other family member?

Yes, but they need to pay fair market rent.

Can I buy the property with someone else?

Yes, but you would need to buy the property as tenantsin-common, where your share of the property should be equal or greater to what you sold. Also, do not create a partnership or multiple-member LLC to own the property. How you structure the co-ownership of property coming out of an exchange should be discussed with your tax advisor.

Can I buy the Replacement Property from a related party?

No, unless you can satisfy some very limited exceptions. See the Exchange Topics overview for Related Party Exchanges on our website.

Improvements

Can I get money back for making improvements to the property before I sold it?

What you did with the property is a separate issue from the Exchange itself. If you receive some cash back at the close of escrow to “pay yourself back” that will likely be considered taxable boot. However, your tax advisor may be able to structure the transaction to offset your taxable boot.

Can I use money from the exchange to improve the new property after I buy it?

The day you take title to the property is the end of the exchange for that property. If you have cash left over, that is taxable boot. There is something called a build-to-suit or improvement exchange, where we, as the intermediary, take title to the property to make the improvements before you take ownership. This is also a more expensive and complicated transaction.