The Encyclopedia of Commercial Real Estate Advice

ENCYCLOPEDIA TOPIC ESelling

1031 Exchange Checklist: This is a gift from the government that only a select few are lucky enough to take advantage of

I have seen many of my clients get amazingly wealthy in less than 10 years by doing 1031 exchanges. Section 1031 of the US Internal Revenue Service tax code is one of the greatest gifts around to property investors. It's almost as if someone at the US Treasury Department woke up one day and said, “What is the best way to make personal wealth grow? Let's have people invest in a property. As that property grows in value over time, let's allow them to sell it at a profit. And let them invest that profit tax deferred into a property of greater value. Then let's allow them to repeat the process over and over.”

A 1031 tax-deferred exchange enables owners of real estate to sell a property and use the equity from the sale to purchase a replacement property while deferring federal and state capital gains tax on the original property to a later time. Here is a checklist to use if you are thinking of doing a 1031 exchange:

Checklist for a 1031 Exchange

• ____Choose your advisors. Choose the best buyer's real estate broker, lender or mortgage broker, and tax attorney to advise you on your exchange.
• ____Choose a qualified intermediary. Also called an accommodator, a qualified intermediary handles the paperwork, sets up escrow, and holds the funds from the sale of your relinquished property.
• ____Determine whether your property qualifies. The ...