Section 1031 Exchange Services
A 1031 exchange allows an investor the opportunity to reinvest the funds
from an investment property sale into replacement properties without facing immediate capital
gains taxes on the appreciated value of the relinquished property. With Internal Revenue Code Section 1031
exchange replacement properties, the taxes will be deferred until the sale of the replacement property.
Deferrals can be continued through as many exchanges as the investor wishes, with the tax liability passing
into that investor's estate in the event of their death.
Section 1031 Requirements
1031 TIC properties must be considered "like kind" (similar in character or nature, notwithstanding
differences in quality or grade) in order to qualify for tax deferral. To qualify as like-kind, the
investor must hold them for productive use in a business or for the purpose of investment.
Types of TiC properties may include:
Retail Shopping Centers
To defer taxable gains via a tenant in common 1031 exchange, the following guidelines should be followed:
The replacement property must be of equal or greater value than the
The equity of the replacement property must be of equal or greater
value than the equity of the relinquished property.
The debt held by the replacement property must be of equal or greater
value than the debt held by the relinquished property.
All net profit from the relinquished property must be used in the
purchase of the replacement property.
The strict identification and timeline rules for a 1031 exchange must be followed to the letter.
The investor must identify in writing the TiC exchange properties within 45 days of the closure
for the relinquished property in accordance with one of the following rules:
Three-Property Rule: Identification of up to three properties
regardless of the total value of property identified.
200% Rule: Identification of any number of properties wherein
the combined FMV (fair market value) does not exceed 200% of the
relinquished properties' FMV
95% Rule: Identification of any number of properties regardless
of the aggregate FMV, as long as at least 95% of the property is
The investor must also close on the replacement property or properties
within 180 days of the closure for the relinquished property.
It is required for the position of Qualified Intermediary (QI) to be
filled by an uninvolved third party. The QI holds the proceeds from the
relinquished property until they are reinvested in the exchange
property. An "exchange agreement" must exist in writing between the QI
and the investor, in order to prevent the investor from facing
"constructive receipt" of the funds during the exchange period. The QI
is required to complete a valid 1031 exchange and ensures that all roles
are followed and equity is preserved during the process.
A 1031 tax deferred exchange may be used by investors as a powerful tool
for building their wealth. A professional tax advisor should be
utilized to ensure that all of the requirements of Section 1031 are
met. Failure to do this can result in the cancellation of the capital
gains deferral and result in immediate tax liabilities and associated
For more information on this matter or if we
may be of further assistance please contact us for a free consultation by calling us at 1 (800) 781-1031
or (714) 938-3877or
by e-mail at
Security investments offered
through Sandlapper Securities, LLC. (Member FINRA, SIPC)
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Section 1031 Exchange Services