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The 1031 Tax Deferred Exchange A "Tax Deferred Exchange" is a method by which an owner of an "Investment" Property trades one one property for another without paying federal income taxes (capital gains) on the proceeds. In an ordinary "Sale" of an Investment Property, the property owner (seller) is taxed on any gain realized by the sale of the property. In an "Exchange", the tax is "deferred" until some time in the future, as long as no money is taken out of the transaction. The seller is allowed to take money out of the transaction during an exchange and only that portion of the proceeds will be taxed at that time. These taxable proceeds are known as the "Boot".
Tax Deferred Exchanges are authorized by Section 1031 of the Internal Revenue Code. In order to qualify, the sale and reinvestment in a replacement property are converted into an exchange by means of an "Exchange Agreement" and the services of a "Qualified Intermediary" i.e. a party who helps insure that the exchange is structured properly.
While all of this "jargon" may seem a little daunting, I.R.S. regulations make exchanging easy, inexpensive and safe. For more information about the 1031 Tax Deferred Exchange, or "Qualified Intermediary" referrals, contact me and I'll be glad to get you started.
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