What is a 1031 Exchange?

It's an understatement to say that the 1031 Exchange has become a driving force in commercial and investment real estate sales transactions. Tax specialists say that the volume of 1031 Exchanges, nationally, has risen 25% over the past three years.

A 1031 Exchange is recognized as a powerful tool for investors to keep more appreciation in their investment properties by deferring capital gains taxes. Combining the power of tax deferral with the tenant-in-common (TIC) structure provides an alternative for the passive-minded real estate investor. Considering the value of a 1031 Exchange may represent a significant portion of an investor's net worth and retirement; all steps taken and decisions made are critical to a successful exchange.

The rules for completing a 1031 Exchange, as required by the IRS, are clear and require strict adherence.

The investor must not take possession of the proceeds of sale. All proceeds to be exchanged must be deposited with an independent party called a Qualified Intermediary (QI). The role of an experienced QI is important. An investor has 45 days from the closing of the property to select and identify property(ies), in writing, and 180 days to close.

This limited timeframe to decide on suitable property(ies) to purchase can be a daunting challenge.

The role of a Real Estate Broker as a property advisor, to help locate the best property(ies) for the investor's situation can be invaluable, given this restricted timeframe. An investor will own the property(ies) for some time into the future, during cyclical real estate markets and economic turns. The role of the Real Estate Broker must be considered carefully in the exchange process.

The Real Estate Broker may aid in the sale of the relinquished property, help perform due diligence, assist in garnering financing and arrange for asset and property management.

The Busches have facilitated many 1031 Exchanges. If they can be of assistance in your next sale and repurchase, be sure to consult with them early on.

Important websites are:
www.irs.gov/likekindexchanges-realestatetips
www.realtor.org/libweb.nsf/pages/fg408