is a 1031 Tax Exchange?
A 1031 tax exchange makes it possible for
investors to sell and buy property of like kind while deferring tax
consequences. This transaction is authorized by section 1031 of the
IRS code and offers investors a reliable strategy for the protection
of their real estate assets. A successful 1031 tax exchange allows the
investor to reinvest 100% of the equity from the sale of a property
into the purchase of a preferred replacement property without
recognizing any gain. This type of property sale and reinvestment
can either be done through a simultaneous or delayed 1031 tax exchange.
In most cases a 1031 tax exchange is done as three-party delayed
exchange also known as a "Starker Exchange" in which an
intermediary ensures a reciprocal transfer of the properties and
provides a "safe harbor" against the actual receipt of
are the advantages of a 1031 exchange?
1031 tax exchanges provide real estate
owners with a range of opportunities to meet personal investment
objectives including increased leverage, improved cash flow,
diversification, reduction of management obligations, geographic
relocation and/or consolidation. The tax dollars saved by an
exchange may be maximized to increase an investor's overall net
worth. Ultimately, the exchange process allows investors to
reorganize and improve their real estate portfolios to best suit
their unique interests and needs.