1031 Tax Deferred Exchanges

Who qualifies for a Section 1031 exchange?

Owners of business and investment properties may qualify for a Section 1031 deferral.
Individuals,
C corporations,
S corporations,
limited liability companies,
partnerships (general or limited),
trusts
and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

What are the different types of a Section 1031 Exchange?

To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest type of 1031 exchange is a simple swap of one property for another at one point in time.

Deferred exchanges are more complex but allow more flexibility. They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties. A deferred exchange is also called a Starker Exchange.

To qualify as a Section 1031 exchange it must be more that just a sale and subsequent purchase of another property (which is a taxable transaction).

In a tax deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property.

Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.

A reverse exchange is somewhat more complex than a deferred exchange. It involves the acquisition of replacement property through an exchange accommodation titleholder, with whom it is parked for no more than 180 days. During this parking period the taxpayer disposes of its relinquished property to close the exchange.