A 1031 Exchange is a tax-deferred exchange of one investment property for another, with a deferral of capital gains taxes on the sale of the property you are exchanging. 1031 Exchanges get their name due to the federal legislation that allows for them, which is Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031). 1031 Exchanges are sometimes also referred to as “Starker” Exchanges, due to a case decided in the 9th Circuit in 1979, Starker v. United States, 602 F.2d 1341, which expanded the area to include non-simultaneous exchanges of real estate.
To qualify for a 1031 Exchange, the seller (or exchanger, to be specific to this process) must meet a number of requirements, prior to, during, and after the sale of the property, which include some very specific deadlines. The failure to follow any of the requirements can fatally jeopardize a successful 1031 Exchange, which would mean you could lose the ability to defer the capital gains on the sale. This could be devastating as the tax liability stemming from a failed 1031 Exchange could arise when you have not budgeted for such an expense, and such an expense could, of course, be significant.
Therefore, if you are considering a 1031 exchange, it is important to speak with a Florida real estate attorney with experience in representing clients through 1031 Exchanges, such as Lakewood Ranch real estate lawyer Joseph Battaglia, to ensure that you meet the requirements for a successful 1031 Exchange. Some of the requirements that must be met include:
- The property being exchanged must have been held for investment or business purposes.
- Timely identifying one or more replacement properties.
- Correctly identifying replacement properties, especially when more than one replacement property is being identified.
- Making sure that a Qualified Intermediary is properly engaged.
- Timely closing on the purchase of the replacement property.
- Ensuring that the funds from the sale are properly escrowed prior to being used for your purchase/replacement.
Battaglia Law, PLLC has experience in representing clients in 1031 Exchanges and can help you with all aspects of the process. We will work with you to identify and engaged a Qualified Intermediary, assist with the sale and purchase transactions, and ensure that all of the requirements are met throughout the process.
If you are considering a 1031 Exchange of Florida investment property, the best time to engage us to assist with this is prior to listing your property for sale. To schedule a consultation, please contact us today. We look forward to hearing from you and assisting with your 1031 Exchange.