Written by Mark Kallus, Owner & Broker
RentLife® Property Management
MPM® | RMP® | TRPM® | TRLS®
Houston’s Local Property Management Experts
What Is A 1031 Exchange and How To Do It?
What Is A 1031 Exchange and How To Do It?
A 1031 exchange is a real estate transaction that allows an investor to sell a property and defer paying capital gains taxes on the sale by using the proceeds to purchase a “like-kind” property within a specific time frame. The name “1031” refers to the tax code section governing these types of transactions.
The steps of a 1031 exchange are as follows:
- Identify the property: The investor must identify the property they wish to sell and the property they want to purchase within 45 days after the sale of the relinquished property.
- Use a Qualified Intermediary: The investor must use a Qualified Intermediary (QI) to handle the exchange. The QI will hold the proceeds of the sale and disburse them to the new property’s closing agent when it is purchased.
- Meet the deadlines: The investor must close on the sale of the relinquished property and purchase the replacement property within 180 days after the sale.
- Purchase like-kind property: The replacement property must be “like-kind” to the relinquished property. This means that the replacement property must be used for investment or business purposes, not for personal use.
- Same Debt and Equity: The debt and equity of the replacement property must be equal to or greater than the relinquished property.
It’s important to note that 1031 exchanges have some restrictions and complexities, and it’s recommended that investors consult with a tax professional or attorney before entering into a 1031 exchange. Also, it’s essential to comply with all deadlines to avoid triggering any capital gain taxes.
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