If you currently own investment property, you might be eligible to replace your current property with your new one and defer the entire tax burden involved in the sale. This is commonly referred to as a 1031 Exchange. The federal tax law has specific guidelines for this but it is an often overlooked opportunity for many investors.

Planning ahead for this benefit must be done before you close on the property you are selling or purchasing. A qualified intermediary, who will hold the proceeds or title, is essential to make certain that all areas of the tax code are met and to prevent future tax concerns or liability resulting from the exchange.

To qualify, properties that are exchanged must be of “like kind”. While this excludes a residence or property that is being used as a second home, it does include a variety of others. For example, a vacation rental villa could be used to exchange for land purchased as an investment. Or a commercial building could be exchanged for apartments.

Participation in this tax program can begin with either the sale or purchase of a property. After closing on the sold property, the candidate has 45 days to identify the replacement property and 180 days to close. Three properties can be identified but there are additional related rules that need to be discussed relating to the specific transaction.

Better to be safe than sorry. Consider finding out if this program is beneficial to you by talking to your accountant and choosing an agent who is knowledgeable about the procedures. Darle has personally completed these exchanges and has assisted others successfully. She would be happy to help you determine if this plan will benefit you.