Test Your 1031 Exchange IQ
William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC
- A 1031 exchange allows you to sell rental property and defer the payment of your capital gain tax by acquiring one or more replacement rental properties.
- It is named after Section 1031 of the Internal Revenue Code, which authorized the tax-deferred exchange of property held for investment.
- The 1031 exchange is known by many other names, including a tax-deferred exchange, delayed exchange, forward 1031 exchange, like-kind exchange, and starker exchange. They all refer to exactly the same type of 1031 exchange.
- The payment of your capital gain tax upon the sale of your rental property would significantly reduce your cash proceeds available for reinvestment. The 1031 exchange defers the payment of your capital gain tax so that 100% of your net proceeds can be reinvested into one or more replacement properties and all of your hard earned cash continues working for you.
- The first step is to evaluate and select your Qualified Intermediary (also referred to as your Accommodator). The Qualified Intermediary must be assigned into your Purchase and Sale Agreement before your sale transaction closes in order to defer your capital gain tax.
- Yes, there are two very important deadlines that you must carefully follow when completing a 1031 exchange. You must identify one or more replacement properties within 45 calendar days from the close of your sale transaction, and you must close on your replacement properties and complete your 1031 exchange within 180 calendar days also from the close of your sale transaction.
- You will defer all of your capital gain tax as long as you acquire property worth more than what you sold and you reinvest all of your cash (net equity) that is sent to your Qualified Intermediary.
- Yes, you can pull cash out of your 1031 exchange, but only if you want to pay some capital gain tax. The only way to pull cash out without incurring capital gain tax would be to refinance well before or after you have completed your 1031 exchange.
- You can complete a partial 1031 exchange. A partial 1031 exchange means that you pull some cash out or trade down in value. It is particular useful when you have some losses that can offset the gain triggered by a partial 1031 exchange.
- Yes, you can acquire your replacement property first. This is referred to as a reverse 1031 exchange because you can acquire your replacement property first and then you have 180 calendar day to sell your relinquished property.
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