Understanding the 1031 Exchange Process
As per IRC §1031, a valid property exchange is the selling of an investment property with the intention of reinvesting the profits into a new property thus deferring capital gains taxes. These transactions allow investors to continue investing in other properties without losing their investment equity to taxes.
If you exchange investment property exclusively for “like-kind” investment property, there is no immediate tax liability thereby making the exchange a desirable option for investors eager to keep the property’s equity for re-investment.
With a 1031 exchange, the replacement property must be identified within 45 days and acquired within 180 days of the sale of the relinquished property. To be eligible for a safe harbor tax deferral, the proceeds must be held by a qualified intermediary between the time of the sale of the relinquished property and the purchase of the replacement property.
A 1031 exchange is a three-step process and one in which a Peak 1031 Exchange, Inc. specialist will guide you through:
Step 1: Selling the Property
Peak 1031 Exchange, Inc. will inform you of available exchange options and recommend which option best suits your specific goal.
We will prepare and organize the required documentation you will need to complete, and an exchange specialist will notify you of important dates during the exchange process.
Step 2: Identifying a Replacement Property
Peak 1031 Exchange, Inc. will prepare all necessary forms.
IRC §1031 requires that identification of a replacement property take place within 45 days (see Rules and Timelines for details on the Identification Rules).
Step 3: Purchasing a Replacement Property
With the guidance of an exchange specialist, you will purchase the replacement property within 180 days of the sale of the relinquished property. Peak 1031 Exchange, Inc. will transfer the proceeds from the sale of the relinquished property to your escrow company and upon closing, you will receive the deed to the replacement property.
There are several types of exchanges: Simultaneous, Delayed Exchange, Reverse Exchange, Improvement Exchange and Personal Property Exchange. Peak 1031 Exchange, Inc. has expertise in all types.