What Is a 1031 Exchange?

Sellers have been asking us more and more lately: What is a 1031 exchange?

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Simply put, a 1031 exchange was developed to allow a property owner to defer taxes from the sale of one property to the sale of another property. The IRS will approve a 1031 exchange as long as it meets their guidelines. To qualify, I recommend that you hire a company experienced with 1031 exchanges, consult with an attorney (or CPA), and hire a licensed real estate broker who has worked with 1031 exchanges. Investors are using this program quite successfully to maximize their return on investments. For example, when you’re selling Property A, you can defer the tax obligation to Property B. You’ll need to disclose this to the new buyers at the time of the listing. When you close on Property A, you’ll want to make sure that you disclose the property you’ll be buying. It can be a list of properties that you’re interested in, and you’ll have a window of opportunity to purchase that property to qualify for the tax-deferred exchange.

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Investors are using this program quite successfully.

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Again, using a qualified 1031 exchange company will guarantee that you’ll be approved, qualified to make sure that your transfer meets all the IRS guidelines, and able to maximize your investment. Many sellers are doing this because they want to diversify or trade property from one investment to another, possibly even from state to state.

Many people are making lifestyle changes due to COVID—including investing in properties—and it’s a great time to think about the advantages of a 1031 exchange. If you’re an investor or you’re looking to become an investor, this is an excellent opportunity we’d be more than happy to help you explore. If you have any questions, call or text today at (239) 248-8000. I’d love to help you.