1031 Exchange

Our attorney can give guidance on 1031 exchanges and other deferred income real estate transactions.  We work closely with IPX 1031.

Internal Revenue Code §1031

"No gain or loss shall be recognized on the exchange of property held for production use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is held either for productive use in a trade or business or for investment."

§1031 exchange provides investors with one of the best tax strategies for preserving the value of an investment portfolio.  By using an exchange the investor is able to defer the recognition of capital gain taxes that would otherwise be incurred on the sale of investment property.  The investor can then use the entire amount of the equity to purchase substantially more replacement property.  To qualify as an exchange the relinquished and replacement properties must be qualified "like-kind" properties and the transaction must be structured as an exchange.  Using Investment Property Exchange Services, Inc. (IPX) as the "Qualified Intermediary" will provide the investor with the necessary reciprocal transfer of property to create the exchange and the "Safe Harbor" protection against actual and constructive receipt of exchange funds as required by §1031.

Exchange Requirements:

As a general rule of thumb, to avoid paying any capital gain taxes in an exchange the investor should always attempt to:

1.  Purchase equal or greater in net sales
     price (value)

2.  Reinvest all of the net equity in
     replacement property

3.  Obtain equal or greater debt on
     replacement property 

Exception: A reduction in debt can be offset with additional cash from exchanger, but increasing debt cannot offset a reduction in exchange equity.