Tax-Deferred Exchange on an Investment Property

Ordinarily, when you sell property for a profit and receive cash, the taxman is there to take his cut. A 1031 Tax-Deferred Exchange on Investment property allows you to roll over the gain from the sale of one investment property into another investment property without being taxed. (Note that this opportunity is available only on investment and income property – not on a personal residence.)

A. Here are the three basic rules: 1) The purchase price of the replacement property must be equal to or greater than the net sale price of the property you’re relinquishing. 2) All cash or other proceeds received from the sale of the relinquished property must be used to acquire the replacement property; and 3) The properties must be of “like-kind,” which means they must be the same type of property – must be, for example, property held for productive use in a trade or business or property held for investment.

B. Select an exchange facilitator to handle paperwork and to receive the funds from the proceeds of the sale.

C. Identify a replacement property within 45 days of the close of escrow or the date you transfer title of the investment property you relinquished.

D. And finally you must inform the buyer of the property you’re selling and the seller of the property you’re buying that you’re doing a Tax-Deferred Exchange.

And, as always, I recommend that you check with your legal counsel to insure you receive the best advise.


“If history could teach us anything, it would be that private property is inextricably linked with civilization.”
Ludwig von Mises

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