Corken + Company has added a new service! We now offer 1031 exchange services.
What is a 1031 exchange?
A 1031 exchange is a like-kind exchange or tax-deferred exchange. It occurs when a real property that is “held for productive use in a trade or business or investment” is sold and the proceeds from the sale are reinvested into a like-kind property intended for business or investment use. It allows the taxpayer, or seller, to defer the capital gains tax and depreciation recapture on the transaction.
The property sold as part of an exchange is the Relinquished Property. The property purchased is the Replacement Property. The real property in an exchange must be like-kind; most real estate is like-kind to all other real estate. For example, an office building could be exchanged for a rental duplex, a retail shopping center could be exchanged for farmland, etc.
Who handles the 1031 exchange?
During a 1031 exchange, neither the taxpayer nor an agent of the taxpayer, can receive or control the funds from the sale of the property. If a taxpayer has direct or indirect access to the funds, a 1031 exchange is no longer valid. A qualified intermediary holds the proceeds of the Relinquished Property sale. They hold the funds until it is time to transfer those proceeds for the close of the Replacement property.
Who qualifies for an exchange?
To be eligible for an exchange the person or entity must be a US tax-paying identity. This includes individuals, partnerships, S-corporations, C-corporations, LLCs, and trusts. However, it is a requirement that the same taxpayer sells the relinquished property and purchases the replacement property for a valid exchange.
1031 exchanges were first authorized in 1921. This occurred when Congress saw the importance of people reinvesting in business assets and they wanted to encourage more of it. There have been changes and additions to the regulations that govern 1031 exchanges. The most recent changes impacting real estate in an exchange were in 2001.
The Corken + Company team is constantly thinking about ways we can benefit our clients, and we are excited about this new opportunity and service!