1031 Qualified Like Kind Exchange
Quarterman Hodson & Morang, P.C. is proud to serve clients in the planning, facilitation, and closing of transactions involving Section 1031 of the Internal Revenue Code.
In addition, we provide services as a Qualified Intermediary, (“QI”) for such transactions. Section 1031 of the Internal Revenue Code allows businesses and individuals to defer the recognition of the capital gains or other taxes associated with the sale of most investment property. Gain, or earnings from the sale of such property typically are taxed at the time of the sale via the federal capital gains tax. However, a 1031 “like kind exchange”, or “exchange”, provides an exception. It postpones the taxation on the earnings, if the earnings are reinvested in similar and qualified business and investment property. A 1031 exchange is important to a property investor because he or she has more liquid cash funds to reinvest into another property since the taxes on the gain from the sale of his or her initial property have been deferred to a later date. An exchange is facilitated via a QI. The QI serves as an independent party, established via Treasury Regulations to facilitate the exchange and hold escrowed funds. A 1031 Exchange does not have to be a simultaneous property swap; however the investor must meet two strict deadlines within 45 and 180 days of the sale of his or her property. If the investor does not meet both of these deadlines, the entire gain from the sale is taxable. Within 45 days of the sale of the property being replaced, the investor must identify potential replacement properties. A description of the replacement properties must be in writing, signed, and delivered to the QI within 45 days from the sale of the property being replaced, and the replacement property must be received via the closing of the purchase of the replacement property with the escrowed 1031 funds not more than 180 days from the initial sale of the property being replaced.