So the quest for a 1031 Exchange expert has ultimately brought you here. It’s great that you understand the importance of having a conversation with an experienced 1031 Exchange expert prior to your 1031 Exchange. However, before you get there, it’s equally important to understand this tax-deferred exchange thoroughly.
A 1031 Exchange, also known as a Tax Deferred Exchange or a Starker Exchange, is a kind of transaction doing which an investor can defer capital gains taxes. In other words, using a 1031 Exchange, investors can defer up to 100% capital gains taxes on property exchange. Though there is a condition – only like-kind properties can be exchanged under 1031 Exchanges. Moreover, properties involved in 1031 Exchanges must be held for use in business, trade, or investment purposes. Complicated, isn’t it? However, the term like-kind means way more than what it appears.
‘Like-kind’ means a lot more than you think.
In 1031 exchanges, the term like-kind is used to define properties that are similar in nature. For example, an investor can exchange any of their investment properties, which could be a retail property, an industrial property, a student-housing building, etc. for another investment property. So, technically using a 1031 Exchange, you can exchange any kind of property for another, except your place of primary residence, and defer capital gains taxes.
Which 1031 Exchange should you choose?
Though there is a universal definition for 1031 Exchanges, however, it doesn’t mean that all 1031 Exchanges are the same. Therefore, it’s important that you know which of the following 1031 Exchanges will suit you the most.
- Delayed Exchange – A Delayed Exchange, also known as a 1031 Exchange or a Starker Exchange, is the most common 1031 Exchange, which requires an investor to sell the relinquished property first and then purchase the replacement property.
- Simultaneous Exchange – Once this form of 1031 exchange was widely used by investors. A Simultaneous Exchange requires an investor to sell the relinquished property and purchase the replacement property at the same time, which means the entire exchange completes in a single day.
- Reverse Exchange – A Reverse Exchange is the opposite of the Delayed Exchange. Here, the investor acquires the replacement property first and then closes on the sale of the relinquished property. Not to mention, an investor can’t hold both property titles at the same time during the transaction.
- Improved or Built-to-Suit Exchange – This kind of exchange allows investors to withdraw a part of their sale proceeds and invest it for carrying out some improvement or maintenance work in the replacement property.
Why should you keep a watch on the deadlines during the transaction?
Missing deadlines in 1031 Exchanges means losing the opportunity of tax deferment. No matter what, you can’t afford to miss deadlines as it will immediately make your 1031 Exchange invalid. That’s why every 1031 Exchange investor must keep an eye on the following deadlines and make sure that they complete their transaction prior to it.
- 45 Days Deadline – As soon as you close on the sale of your relinquished property, the deadlines for identifying and buying a potential replacement property begin. Hence, the day your relinquished property is sold, that’s ‘Day Zero’ for your 1031 Exchange. Thereafter, you must identify a potential replacement property and send a written identification of it to 1031 Corp on or before the 45th day. This time frame of 45 days is known as the ‘identification period.’
- 180 Days Deadline – Once you successfully identify the potential replacement property, you’re left with another 135 days to acquire the same. 1031 Exchange investors get 180 days in total, the first 45 days for identifying the potential replacement property and the next 135 days for acquiring it. In case your replacement property requires any repair, then you must complete it before acquiring the replacement property.
How to choose the best 1031 Exchange Experts in your state?
No matter whether you’re in Colorado, Texas, Minnesota, or in any other state, the role of a 1031 Exchange expert remains the same in every part of the United States. An experienced 1031 Exchange expert can help you in avoiding some minor mistakes that 1031 Exchange investors often tend to commit. Therefore, it’s important that you choose such an individual as your 1031 Exchange expert, who doesn’t only possess theoretical knowledge but also has incomparable practical experience.
That’s where we come to your service. We match you with up to three 1031 Exchange experts and make sure that one of them stays with you throughout the transaction. Not only this, but we also make sure that one of our experts stays in contact with your attorney, accountant, or closing agent to ensure that the transaction carries out smoothly.