Can a 1031 exchange be done for a second home?

No. Section 1031 can only be used for investment and business property. If the taxpayer lives in the property for more than 2 weeks a year, it is deemed a second home by the IRS.

Can a taxpayer do a 1031 exchange by themselves if they document it properly?

No. In order to perform a 1031 exchange, the taxpayer must enlist the services of a Qualified Intermediary. The QI must be an independent third party.

Can I buy share in a Real Estate Partnership or REIT with my proceeds of a 1031?

No. Partnership interests or shares in a REIT are not considered real estate by the IRS. They are considered personal property and are therefore not "like kind” to real estate.

Is exchanging property new?

No, section 1031 of the Internal Revenue Code was first introduced into the tax code in 1921. The code was changed drastically in the 1980's to better enable taxpayers to conduct a deferred exchange.

What are the benefits of doing a 1031 exchange versus a sale?

1031 like-kind exchange transactions enable a taxpayer to sell real property and to roll the profits into other property without paying state and federal capital gains taxes. By completing a 1031 like-kind exchange you defer your capital gain and depreciation recapture tax and therefore have 100% of your net proceeds from the sale of your investment property available to reinvest in other like-kind replacement property, especially to trade up in value and improve your cash flow.

What is a 1031 tax-deferred, like-kind exchange?

Section 1031 of the IRS code enables taxpayers to dispose of certain real or personal property and defer their federal, and in most cases, state income tax liability by exchanging the real or personal property (relinquished property) for qualified use "like-kind" property (replacement property).

What are the different types of 1031 like-kind exchanges?

Simultaneous (Concurrent) Exchange: The exchange (disposition) of the relinquished property (sale property) and the purchase of the like-kind replacement property occurs at the same time.

Delayed Exchange: This is the most common structure or form for most 1031 exchange transactions today. A Delayed Exchange occurs when there is a time delay between the transfer (conveyance) of the relinquished property (sale property) and the purchase of the like-kind replacement property. A Delayed Exchange is subject to specified time frames, which are set forth in Section 1.1031 of the IRS code.

Reverse Exchange: A transactional structure where the like-kind replacement property is purchased first, prior to transferring (conveying or selling) the relinquished property to the actual buyer. The Internal Revenue Service provided guidelines (safe harbors) for structuring reverse 1031 exchange transactions, as outlined in Rev. Procedure 2000-37, effective September 15, 2000. Reverse exchanges are structured pursuant to this Revenue Procedure and are considered to be "safe-harbor" reverse 1031 exchange transactions and those structured outside of the Revenue Procedure are considered to be "non-safe harbor" reverse 1031 exchange transactions and should only be completed with competent legal counsel. Reverse 1031 exchanges are also referred to as parking transactions or parking arrangements.

Build-to-Suit (Improvement or Construction) Exchange: This technique allows the taxpayer to build on, or make improvements to, the like-kind replacement property, using the exchange proceeds before they actually take title to the property.

Personal Property Exchange: Personal property can also be exchanged for other personal property of like-kind or like-class as long as the personal property has been held for investment, income production (rental) or use in a business.

More>>