Delayed Exchange

Exchange Timeline

Start

Exchange timeline begins upon transfer of relinquished property

45 Days

Deadline for identification of replacement properties

180 Days

Deadline for acquisition of replacement properties

Real estate and property owners who hold property for investment or for productive use in a trade or business are eligible for tax deferment of capital gains taxes under Section 1031 of the Internal Revenue Code.  By utilizing Section 1031, a qualifying taxpayer who sells property may reinvest the full proceeds of the sale, including amounts ordinarily paid as capital gains tax, into one or more “like-kind” properties.  Examples of like-kind property include the following: rental properties, farms and ranches, offices, motels and hotels, golf courses, raw land, retail properties, industrial properties, and properties leased for 30 years or more.

Most tax-deferred exchanges are classified as delayed exchanges.  A basic delayed exchange occurs when a taxpayer sells “relinquished” property and exchanges it for “replacement” property within a 180-day time period.  The taxpayer must adhere to other specific procedures and time period limitations.

To accomplish a successful tax-deferred exchange, taxpayers must specifically structure their transaction so it meets the requirements of the Internal Revenue Code.  The most common method for structuring a tax-deferred exchange is for an exchanging taxpayer to utilize the services of a qualified intermediary, such as IPE 1031.  Careful attention must be paid by the exchanging taxpayer to ensure that a qualified intermediary has been hired prior to the sale of the original relinquished property, and to ensure that the taxpayer or the taxpayer’s agents do not receive any of the proceeds from the sale.

Certain persons are disqualified by Section 1031 from serving in the capacity of a qualified intermediary.  Disqualified parties include the taxpayer's employee, attorney, accountant, investment banker/broker or real estate agent/broker.  Disqualified parties additionally include certain family members such as parents, siblings, spouses, and children; and certain business entities owned by the taxpayer. 

By utilizing Section 1031, a taxpayer can defer payment of capital gains taxes each time an exchange is done until an exchanged property is sold and cash proceeds are received.