What does the term "1031" refer to?

1031 is the number assigned to the Internal Revenue Code Section that deals with the tax-deferred exchange.

Why is a tax-deferred exchange popular?

Investors utilize the 1031 as a way to defer tax that would otherwise be due on  a straight sale.  It allows for greater flexibility in their investments, and they can utilize all their equity to purchase another property or properties.

What is a delayed exchange?

Also called non-simultaneous, deferred, or a "Starker Exchange," a delayed exchange is a tax-deferred exchange in which the Replacement Property is received after the transfer of the Relinquished Property.

What is a simultaneous exchange?

Also referred to as a concurrent exchange, a simultaneous exchange is an exchange transaction in which the Exchanger transfers out of the Relinquished Property and receives Replacement Property at the same time.

Do I have access to my money during the exchange?

During the exchange transaction your exchange proceeds are put into an exchange trust account.  This is done so you don't have "constructive receipt" of the proceeds. If you choose to cancel the exchange transaction after the sale of your investment property, your funds can be returned to you, and you will be taxed on the gain from the sale.  Restrictions Apply.

After the 1031 Exchange transaction, when will I be required to pay the taxes?

When you sell the investment property again without doing an exchange.

Suppose I won a piece of property that has my own primary residence on it as well as a rental unit on it.  Would it still qualify for an exchange?

Yes.  The most important thing here is to remain consistent with your past tax returns.  Consult your tax advisor to determine what percentage of the value of the property you have indicated as an investment. You can exchange that portion of the gain.

Can a relative or business associate be my accommodator? 

No, the Accommodator must be a not-related party.  If you have had any business dealings with your own Attorney, CPA or business associate, within the past 2 years, they will not qualify as an approved Accommodator.

Can I buy and close on my purchase before I sell my property?

Yes. This is called a REVERSE EXCHANGE.  In September 2000, new Safe Harbors were published by the IRS to accomplish this type of exchange. You must park title to one of the two properties before buying your new property.  Do not close on the purchase until speaking with an Accommodator.

How long must I hold property before I can make an exchange?

There is no absolute set rule, however, intent and motivation are very important.  Contact your CPA for advice on this matter.

If I have already opened an escrow, is it too late to do a 1031 Tax Exchange?

No, but once you have closed your sale escrow, you cannot re-open it to do a 1031 Exchange. If you are in escrow now and you plan to use an Accommodator, do not delay in contacting your Accommodator.

How do I know if I'm better off exchanging a property versus selling?

You'll need to consult with your tax advisor, accountant, or legal advisor.

What is a partial-tax exchange?

If the equity in your investment property is $150,000 and you wanted to use only $100,000 to purchase your replacement property and take the $50,000 out to buy a new car, you would have a partially tax deferred exchange. The $50,000 cash you took out is considered cash "boot", and you would pay capital gains tax on that amount.

If I own a property in one state, can I exchange it for property in another state?

Yes. The Facilitator Company used handles exchanges in all 50 states, consistent with Federal guidelines.

If two of us own a property as tenants in common and I want to go forward in a 1031 Exchange, but my co-owner wants to take his money, is that allowable?

Yes, however, he is subject to the tax on any profit. (Partnerships are subject to different rules.)

Can I earn interest on exchange proceeds in the trust account?