WHAT IS A 1031 EXCHANGE?
The Sully Group has a track record in helping clients through some of the most complicated exchanges. We break down many of the steps and frequently asked questions below. We have seen the 1031 Exchange process to be a very effective and powerful vehicle that can yield tax benefits and positive return on investment. If you feel like a 1031 Exchange transaction would be a benefit to you, we invite you to set up a virtual meeting with us today.
The 1031 Exchange is a way to defer tax liability on income from the sale of real estate if you intend to reinvest the income in another real estate purchase within a specified amount of time. By following the guidelines established by the IRS Section 1031, any gains you make on the sale of the original property are not subject to immediate taxation as capital gains. This is because selling your existing property and acquiring a new property is considered an exchange. You can defer capital gains taxes as long as you continue to exchange every time you sell the property in the future. There is more than one type of 1031 Exchange. The most common type is called a "Delayed" 1031 Exchange. To give you some insight on a typical transaction, we have broken down the steps for a "Delayed" 1031 Exchange below.
PLAN THE TRANSACTION
Set up a meeting with our team to discuss your specific needs. After listening to your investment objectives, we'll determine the best way to structure your transaction and help estimate the amount of potential capital gains taxes you'll save.
PURCHASE & SALE AGREEMENT
The exchange often begins with a standard purchase and sale agreement. The agreement should contain language which establishes the exchanger's intent to exchange and obtains the buyers consent to cooperate. Our team will assist to convert this "sale" transaction into an exchange with the use of specialized documentation.
Once you have decided to perform an exchange, we will help you prepare the exchange documents. At closing, the relinquished property will be sold to the buyer. The proceeds are then held for the acquisition of the replacement property.
After closing the relinquished property, the exchanger has 45 days to identify the replacement property and 180 days to complete the exchange. The Sully Group will help deliver the documents needed to complete the exchange to the closing agent. Once the purchase is closed, the exchange is complete.