1031 IRC Exchanges: And Why Should I Care?

1031 exchanges are a perfectly legal and effective way for property owners to defer paying capital gains tax when they trade one property for another. More than that, because the tax payment is deferred, you have more money with which to acquire that new property.

The key is you don’t literally sell the first property to buy another. You exchange the first property, the relinquished property, for the second, the replacement property. The best way to do this is by using a qualified intermediary who has experience with many kinds of property exchange.

That means calling 1-800-237-1031. You’ll reach American Equity Exchange, Inc. American Equity Exchange has successfully managed thousands of exchanges, large and small, simple and complicated. Most certainly, they have handled more than one exchange just like yours.

You can use 1031 exchanges for commercial or investment real estate, equipment, livestock or even airplanes. The stipulation is that the relinquished property and the replacement property must be “like kind” or held for investment or business use. That means you can trade an industrial building for raw land or rental properties for an office building. Personal residences and dealer property are about the only properties not eligible for 1031 exchanges.

1031 exchanges are a product of Section 1031, which has been part of the Internal Revenue Code since 1921. There is a lot to the process. The details can be numerous and your exchange must be managed correctly and efficiently.

1031 exchanges allow you to contract to sell your relinquished property. At the closing, however, the proceeds are given to a qualified intermediary company such as AEEI. AEEI holds the funds, called exchange funds, until you find your replacement property. You have 45 days after the transfer of the relinquished property to identify the replacement property. You must close on the purchase of the replacement property within 180 days after the transfer of the relinquished property. When you identify the replacement property, AEEI acquires it for you. They use the exchange funds they are holding for you to make that happen. This is a win-win result for you.

How long must you hold the relinquished property in order to defer the capital gains tax? Currently, there is no hard and fast rule, and the owner’s intent is a critical factor. That is, the owner must have had a bona fide intent to hold the property for investment or business use. You can keep exchanging one property for another as long as your ownership is based upon that bona fide business use or investment intent. You continue to defer paying capital gains until you cease using the property for business or investment use and “cash out” of your property.

Can it be cumbersome? Sure. Can it be tricky? Absolutely. But the results of an exchange done properly can work for you. That’s why it makes sense to call a qualified intermediary which knows the process, inside and out. That’s why you should call American Equity Exchange. They’re experienced. They have a nationwide reputation for keeping you informed of your options and on the right track. Call 1-800-237-1031. American Equity Exchange IS the 1031 Authority.

For more information, read “Save Tax Dollars With a Section 1031 Exchange” by Max A. Hansen, J.D., CES.

American Equity Exchange, Inc.
P.O. Box 1031
8 South Idaho Street, Suite C
Dillon, MT 59725
1-800-237-1031