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Resource Center > Section 1031 Exchanges for Real Estate

When an investor in real estate sells real estate, a capital gains tax is recognized, along with a tax on deprecation recapture. The regular capital gains tax, deprecation recapture, and any applicable state tax can often result in a tax liability in the 20% to 25% range for the sale of real estate.

A Section 1031 exchange, named for the applicable section of the Internal Revenue Code (also known as a Starker Exchange, Tax Free Exchange, or Like-Kind exchange), allows an investor to defer all tax on the sale of real estate if the real estate is replaced with other real estate pursuant to a detailed set of rules.

The primary rules are as follows:

• The replacement property must be identified within 45 days of the sale of the relinquished property.
• The replacement property must be purchased within 180 days of the sale of the relinquished property.
• The replacement property must have a purchase price at least as great as the relinquished property, otherwise some tax will be recognized.
• All of the cash proceeds from the sale of the relinquished property, less any debt repayment and expenses of the sale, must be reinvested in the replacement property.
• All of the cash proceeds from the sale of the relinquished property must be held by a Qualified Intermediary, which is a person or institution with whom the investor has not recently conducted other business. The investor must not have any access to the cash while it is being held.
• The titleholder of the relinquished property must be the same as the purchaser of the replacement property.
• The sale or purchase of a partnership interest does not qualify for a Section 1031 exchange, except under a few limited set of circumstances.
• The relinquished property cannot have been classified as inventory, such as condominiums built by the investor, or lots in a subdivision that was subdivided by the investor.
  

Lawyer Jeffrey Howard Skatoff has extensive experience structuring Section 1031 exchange for his clients. Mr. Skatoff counsels businesses and residents within the State of Florida and nationally on the sale of real estate using Section 1031 exchanges.

Mr. Skatoff can also create other income tax deferral techniques if the sale of real estate cannot be structured to qualify as a Section 1031 exchange. For example, some clients may not have a suitable reinvestment property to purchase within the applicable time period. Other clients may wish to construct their own replacement asset, which is not allowed under the Section 1031 exchange rules.

Please contact attorney Jeffrey Skatoff, at 888-752-8633 or send him an email if you wish to learn more.