Many of our clients purchased their investment properties under Ronald Reagan’s Economic Recovery Act and have now decided to sell and cash in on their investment.  Most of them, however, don’t want to lose a good portion of their profit to federal capital gains taxes so they are placing their proceeds into a 1031 tax free exchange.  A seller must express his intent to place his funds into a 1031 tax free exchange fund in the sales and purchase contract.  Upon the sale of the property, the seller has 45 days from the date of closing to identify an exchange property.  Up to three properties may be identified.  The seller must close on one of the three identified properties within 180 days from the date of closing.   An intermediary is used to hold the funds in an escrow account.  1031 tax free exchanges enable investors to avoid paying capital gains tax which in turn provides an investor with more money to invest in other properties.  This type of exchange may be done with any type of property as long as you are trading “like-kind” properties such as trading a business property for another business property or trading an investment property for another investment property.   You may never use the funds for the purchase of a primary or secondary home.

For more information or additional rules and regulations of a 1031 tax free exchange, please obtain additional information from your CPA or exchange intermediary. 

If you would like assistance in locating an exchange intermediary, please contact us anytime.