Question 1

What is a 1031 tax-deferred exchange?

Accepted Answer

A 1031 exchange (IRC Section 1031): allows an investor to defer capital gains taxes by exchanging one investment property for another of like-kind. Requirements: both properties must be held for investment or business use (not personal residences), the properties must be "like-kind" (in real estate: virtually any type of real property qualifies), the exchange must be completed within strict timelines, and the entire gain must be reinvested (including the equity and debt). The exchange: defers the tax (it is not eliminated; the tax is due when the replacement property is eventually sold without another exchange).

Question 2

What are the timeline requirements for a 1031 exchange?

Accepted Answer

Timelines: 45-day identification period (the investor must identify potential replacement properties within 45 days of closing on the relinquished property; up to 3 properties may be identified regardless of value, or any number if the total value does not exceed 200% of the relinquished property), and 180-day exchange period (the investor must close on the replacement property within 180 days of closing on the relinquished property, or the due date of the investor’s tax return, whichever is earlier). These deadlines are absolute: extensions are not available (except in limited disaster relief situations).

Question 3

How does a 1031 exchange work with Florida real estate?

Accepted Answer

FL application: the investor sells FL investment property (the relinquished property), a qualified intermediary (QI) holds the sale proceeds (the investor cannot touch the funds), the investor identifies replacement property within 45 days, the QI uses the proceeds to purchase the replacement property within 180 days, and the exchange is complete. FL-specific: no state income tax (the deferral only applies to federal capital gains tax), documentary stamp tax applies to both the sale and purchase, and the replacement property can be in any state (not limited to Florida). The QI must be independent (not the investor’s attorney or CPA).

Tax-Deferred Exchange

1031 Tax-Deferred Exchanges

Requirements

Timelines

FL Specifics

Related Terms

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