If you own and are thinking of selling an investment property, you’ll likely run into the term “1031 exchange.” But what is it, and how can it impact your sale? The experts at Investors Title are here to give you the 411 on 1031s.
What is a 1031 Exchange?
A 1031 exchange is an exchange, sale, and reinvestment of the proceeds from the investment property, which allows the seller to defer payment of capital gains taxes. Sometimes referred to as a 1031 Like Kind Exchange, these transactions get their names from Section 1031 of the U.S. Internal Revenue Code.
The owner of an investment property may identify one or more replacements properties within 45 days of the closing date of the exchange property. The closing of the replacement property must occur within 180 days from the exchange property closing date.
The replacement property doesn’t have to be of similar or “same” use, but it does have to be real estate.
Why Might I Consider a 1031 Exchange?
A 1031 exchange may be useful if you’re in one of the following situations:
- You want to find a property that offers better return prospects.
- You’re looking to diversify your assets.
- You may seek a managed property vs. managing a property yourself.
- You’re interested in consolidating multiple properties into one.
How Do I Navigate This Transaction?
Investors Title Company can act as a qualified intermediary for a 1031 exchange. The responsibility of the qualified intermediary is to have sole and exclusive possession of all of the exchange funds — they make no representations regarding the tax consequences of the transaction.
The deposit of the exchange funds will be held in a federally insured institution and will be disbursed in accordance to the exchange agreement. Additionally, the qualified intermediary’s responsibility is to follow the agreement and instructions of the seller/taxpayer.
It’s important to consult with a tax preparer first before entering into a 1031 exchange. Investors Title Company has an extensive amount of professional experience and expertise in closing 1031 exchanges as well as other logistics involved in real estate transactions.
Whether you’re looking for assistance with residential or commercial title services, you’ll have confidence knowing our St. Louis title company is behind you each step of the way. Are you ready to get started? Contact one of our title insurance experts today.