How do you qualify for a tax-deferred exchange?

The main requirements for a 1031 exchange are: (1) must purchase another “like-kind” investment property; (2) replacement property must be of equal or greater value; (3) must invest all of the proceeds from the sale (cannot receive any “boot”); (4) must be the same title holder and taxpayer; (5) must identify new …

What is the tax-deferred exchange?

In real estate, a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. The term, which gets its name from the Internal Revenue Service (IRS) code Section 1031, is bandied about by realtors, title companies, investors, and soccer moms.

Who is taxed on a tax deferred exchange?

A tax deferred exchange is simply a method by which a property owner trades one property for another without having to pay federal income taxes on the transaction. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property.

When do you pay tax on an exchange transaction?

In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. But in an exchange, the tax on the transaction is deferred until some time in the future, usually when the newly acquired property is sold.

Is the 1031 exchange tax deferred or tax eliminated?

Tax Deferred, Not Tax Eliminated. A 1031 Exchange, whether you use a Delaware Statutory Trust or some other qualifying replacement investment, does not eliminate capital gains taxes, they’re deferred. Same thing with a Deferred Sale Trust – at least, until you start receiving the cash flow, which triggers capital gains tax exposure.

Who is the Qualified Intermediary of the exchangor?

The qualified intermediary (QI) is an entity or individual independent of the exchangor and not deemed to be its agent, either objectively or subjectively. Under the objective test, the QI cannot be the taxpayer’s closing attorney or anyone else who has had a business relationship with the exchangor during the last two years.