Section 1031 Exchange Qualified Intermediary + Exchange Accommodation Title Holder
1031-X, LLC
Seasoned 1031 qualified intermediaries serving clients nationwide
in the sale and purchase of investment real estate.
What is a 1031 Exchange?
1031 Exchanges have been part of the tax code since 1921. When real property and improvements are held as an investment or held in the productive use of a business and then sold, federal and state capital gain and depreciation recapture taxes are triggered. A 1031 exchange, also known as a like-kind exchange, is a real estate transaction where investors can defer capital gains taxes when selling an investment property and using the proceeds to purchase another property. This allows investors to reinvest their full equity into a new property, potentially increasing their portfolio size or diversifying their investments without immediate tax implications.
The 1031 Qualified Intermediary
A 1031 Qualified Intermediary (or “QI”) is a neutral third party that facilitates a 1031 exchange of investment or business real property. The IRS requires such neutral third parties to handle the sale proceeds, because if the taxpayer receives the funds directly or constructively, those funds may be subject to immediate capital gains taxes. Thus, for a successful 1031 exchange and the deferral of capital gains taxes, a QI is essential to hold the sale proceeds in escrow to prevent the taxpayer from having actual or even constructive receipt of the funds. A QI also manages the transfer of the Relinquished Property and the acquisition of the Replacement Property, ensuring compliance with the strict timelines and documentation required by current tax laws. Finally, together with a client’s CPA or tax advisor, an experienced QI can provide valuable guidance throughout the exchange process.
Some Basic Rules
Although there is much to know, below are some basic elements to help you quickly familiarize yourself with the vocabulary and standard questions that you may be asked during the exchange process.
Same Taxpayer
The tax return and name(s) appearing on the title of the Relinquished Property that sells must be the same as the tax return and titleholder that buys the Replacement Property. A single member limited liability company or a grantor/revocable trust are both disregarded for income tax purposes and thus considered the same taxpayer as the sole member or grantor respectively.
Eligible 1031 Property
Since the rules changed back in 2018, all investment real estate (or real estate used in one’s trade or business) located in the United States are eligible for 1031 consideration; just for example, one may exchange raw/unimproved land for a residential condo, or a single-family home for multiple boat slips. Real property used for personal use is generally not eligible for 1031 consideration and may include: one’s primary or secondary residence, family vacation home, inventory of real estate developers, etc.
Deadlines
There are two primary deadlines in a 1031 exchange: (1) starting with the closing of the first Relinquished Property to sell, the taxpayer has 45 calendar days to identify to the Qualified Intermediary the addresses of the potential Replacement Properties the taxpayer intends to purchase; and (2) also starting with the closing of the first Relinquished Property to sell, the taxpayer has 180 calendar days to purchase its Replacement Property and complete the exchange.
Though this information is not intended in any way to be comprehensive, we do hope that it helps to begin to build your initial basic understanding of 1031 exchanges. Should you have additional questions or would like clarity with respect to any of the information above, please don’t hesitate to reach out to us via phone at 1-843-795-1909 or submit your question through the Contact link below. We look forward to hearing from you!