IRC 1031

1031 tax deferred exchanges allow real estate investors to defer capital gain taxes on the sale of a property held for productive use in trade or business or for investment.  This tax deferral provides many benefits including the obvious – 100% preservation of equity.    In most circumstances, the use of a qualified intermediary is required to successfully complete an IRC Section 1031 tax-deferred exchange. Investors can take advantage of exchanges to meet other potential objectives including:        

        A ) Leverage: exchanging from a high equity position or “free and clear” property into a much larger property with some financing in order to increase their return on investment.         

        B) Diversification: Such as exchanging into other geographical regions or diversifying by property type such as exchanging from several residential units into a retail strip center.         

        C) Management Relief: for example, exchanging out of multiple relinquished properties into either a replacement property like an apartment complex with an on-site manager or a tenant-in-common ownership program.      

For full tax deferral, an exchanger must reinvest all of the new proceeds in “like-kind” replacement property and have the same or greater amount of debt on the replacement property or properties.  Another way of looking at this is to purchase replacement property of equal or greater value, and reinvest all of the net equity.