What is a 1031 Exchange?
A 1031 exchange allows an investor to sell real estate property and then reinvest the proceeds in a new property in order to defer, or even eliminate, the taxes that may arise from the sale. Utilizing a 1031 exchange allows the money that would have been paid in taxes to remain invested, potentially generating additional income and wealth.
The Official Definition of a 1031 Exchange
The official IRC Section (a)(1) states:
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held for productive use in a trade or business or for investment.”
1031 Exchange Rules and Timelines
However, with the benefit come strict rules that must be followed. We’re here to help guide you through these specific 1031 exchange rules and timelines.
- There are strict timelines that must be followed, including an identification period and a closing period.
- All funds from a sale must be reinvested in a replacement property in order to fully defer capital gains tax.
- In order to completely defer taxes, the mortgage amount of the replacement property must be equal to or more than the mortgage on the relinquished property—or additional equity must be added.
- A Qualified Intermediary must hold the proceeds during an exchange.
- The legal buyer of the replacement property must match the legal name/entity of the seller of the relinquished property.
Passive Ownership Structures
A 1031 exchange can be completed into passive ownership structures such as a Delaware Statutory Trusts (DST) and Tenants-in-Common (TIC). These passive real estate investments might be a suitable solution for your exchange.
Learn more about using DSTs as replacement properties.
Are you ready to talk?
Whether you're thinking about selling a property and want to better understand the 1031 exchange process and investment choices, or if you already sold your property and the proceeds are currently held at a Qualified Intermediary, we can help.
Please call us at (224) 245-5281 or schedule an introduction today.
Chicagoland 1031 Exchange proudly serves clients nationwide, including California, Illinois, Florida, Colorado, Massachusetts, and more.
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years, and reasonably expects the same for the current year) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investor’s situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Nathan Kuhn at 224-245-5281.
Chicagoland 1031 Exchange does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
Securities offered through DAI Securities, LLC, member FINRA / SIPC. Advisory services offered through Kuhn Wealth Management, Inc. (KWM), a state registered investment advisor. Insurance offered through DAI Securities, LLC. KWM dba Chicagoland 1031 Exchange is independent of DAI Securities, LLC.
