How Does a 1031 Exchange Work?
- An investor must decide it is most beneficial to their financial future to sell their property and defer capital gains taxes by entering into a 1031 Exchange.
- The owner must sell the property. To qualify for a 1031, an investor cannot take receipt of the proceeds—it must be held by a Qualified Intermediary until a new property is purchased.
- Identify a new property. The most common 1031 Exchanges are “delayed exchanges,” which gives the investor 180 days to close on a new property to complete the exchange. To qualify for the tax deferment, investors must reinvest the entirety of the proceeds from the initial sale and acquire real estate with the same or greater amount of debt (leverage).