Commonly Asked 1031 Questions

  1. What is a 1031 tax-deferred exchange?  IRS Code Section 1031 and related regulations have existed since the 1920's.  The code allows an individual or business entity to "exchange" one or more pieces of business property for another business property.  Real estate that has appreciated over the years can be exchanged without paying capital gains.  Owners of investment real estate have a wide range of options while not paying capital gains such as exchanging vacant land, retiring and selling the farm, selling a piece of property, or exchanging property for estate purposes.   
  2. What type of property qualifies for a 1031 exchange?  Almost any relinquished property that was held for business or investment purposes can be used for a tax-deferred exchange.  Some examples could be farm land, an apartment or office building, a rental home, a strip mall, shopping center, or even vacant land.       
  3. How much time do I have to identify my replacement property?  There are two time restrictions that you must take into consideration.  The first is the period of time in which you must identify your replacement property.  This has to be done within 45 days of closing the sale of your existing property.  The second time period is the period in which you must close on your replacement property.  This must be done within 180 days of closing on the sale of your exisitng property.
  4. What if I miss a deadline?   The 45th and 180th day time periods can not be extended, even if those days fall on a holiday or weekend.  Missing these deadlines would cause the exchange not to be granted by the IRS and any capital gains taxes on your sold property would have to be paid.
  5. Are taxes permanently avoided with a 1031 exchange?  No, a 1031 exchange, like-kind exchange, is a tax deferral.  When you purchase the new property, all proceeds from the sale are used in the purchase since no taxes are paid.  The new property purchased has the same cost basis as the old property.  You can sell the new property as another 1031 exchange and again continue the tax deferral. 
  6. What happens if I die?    Upon death, your beneficiaries inherit the property at the current market value, "stepped up basis", and the capital gains are forgiven.
  7. How do I find 1031 Tenants-in-Common properties?  This is an additional area in which R.L. Johnson Investments will be of great help to you.  We work with many of the sponsor companies that provide the properties for 1031 Tenants-in-Common Exchanges. We'll listen to you to help identify the properties that meet your needs for cash flow, geographic location, depreciation, and business type (office, retail, residential).  We'll also identify those properties that will meet the 45 day and 180 day requirments. 
  8. What about the money from the sale of my existing property?  The Qualified Intermediary will hold the proceeds of the sale until they are needed to acquire the replacement property.  If the seller recieves the proceeds,a 1031 exchange is disqualified, and the proceeds will be taxed.

For all additional questions, please call R.L. Johnson Investments at (513) 367-1031.

 

 

*The material contained neither constitutes an offer to sell or an offer to buy real estate or securities.  Such offers are made only by the sponsor's private placement memorandum which is always controlling.  There are natural risks associated with the ownership of real estate.  **This type of investment is highly speculative.  There are significant risks for acquiring interests as replacement property in a 1031 exchange.  1031 exchanges are for accredited investors only.

 

  • An accredited investor is an individual with a net worth, or joint net worth with their spouse that exceeds $1 million at the time of the purchase; or an individual with income exceeding $200,000 in the last two years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same in the current year; or a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

R.L. Johnson Investments does not provide legal or tax advice and purchasers should contact their attorneys and/or accountants for situations that may have legal and /or tax implications.

Check the background of this financial professional on FINRA's BrokerCheck
Check the background of this financial professional on FINRA's BrokerCheck