Also called a like-kind exchange or a "Starker," a 1031 exchange allows you to trade one investment asset for another without immediate tax consequences. Such trades are most commonly used in real estate to swap one piece of property for another without having to pay capital gains tax until you eventually sell the replacement property. If properly handled, the 1031 exchange allows investors to indefinitely defer the payment of capital gains taxes that would ordinarily be due on the profits from the sale of investment property.
At Futterman, Sirotkin & Seinfeld, LLP, we are here to advise you about the pros and cons of using 1031 exchanges. Over the past six decades, our attorneys have established a reputation for providing highly knowledgeable and efficient representation in real estate matters of all kinds.
Common Questions And Answers
Here are a few frequently asked questions regarding 1031 exchanges:
- How many times can I use a 1031? There is no limit on how many times you can trade one investment asset or business for another.
- Can I trade my family's house for a different one? No, you can only use a 1031 for business assets or investment assets, not primary residences.
- Do I have to trade for the exact same type of property? While the trade must be for a like-kind asset, the term "like-kind" can be interpreted quite broadly. In other words, you don't have to exchange an office building for another office building; you could trade it for a manufacturing plant or a strip mall instead. You could also do a like-kind exchange of a single family rental property for a multi-family rental property.
- What is a delayed exchange? Essentially, a delayed exchange occurs when you have someone who wants your property, but you haven't yet found the property you want in exchange. You can sell your real estate, then have a third party hold the proceeds for you. That third party then uses the cash to buy the property you want, once you find it.
Beware: You Are Facing Strict Deadlines
1031 exchanges come with strict time limits, especially when you have a delayed exchange. There is a very strictly enforced deadline of 45 days after the date of the sale of your property to identify the replacement property that you intend to purchase and notify the third party in writing.
There is a second strictly enforced deadline of 180 days for you to close on the property that you are purchasing as replacement property. There are absolutely no extensions of these periods for any reason whatsoever.
Learn More From An Experienced Real Estate Lawyer
Because New York tax laws and federal tax laws are complex, we encourage you to set up a consultation with one of our lawyers and discuss the rules in detail. Send us an email or call 866-679-2513 or 718-577-2573 to arrange a meeting at one of our three office locations.