 What you need to know about a 1031 Tax Deferred Exchange
In July of 1991, the IRS finalized the rules governing Delayed Exchanges. This gives everyone the opportunity to use purchase and sale techniques to structure tax deferred exchanges. The deferred exchange is an alternative to a common sale and purchase transaction. If you wish to keep your investment money in real estate, you should consider the tax advantages of a deferred exchange.
A. Definition of some Common Terms
Relinquished Property: This is the property you now own and are planning to sell or exchange.
Replacement Property: This is the property or properties (there can be more than one) that you are planning to purchase.
Non-recognition of gain: IRS terminology that means you don't have to pay the Capital Gains Tax on the transaction.
B. Exchange Requirements for Non Recognition of Gain
There are three conditions that must be met to accomplish non-recognition of gain:
1. The properties exchanged must qualify, and be of "like-kind".
2. There must be an actual exchange, not a transfer of property for money only.
3. The time requirements must be strictly followed.
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