Investors 1031 exchange buy and hold investments rental property

1031 Exchanges

What is a 1031 Exchange?

Tax deferred exchanges under Section 1031 of the Internal Revenue Code are one of the last significant tax exchanges remaining for real estate investors.
An IRS §1031 Exchange allows investors to sell business or rental property and purchase a “like kind” property and defer paying taxes on the capital gains from the sale provided one follows certain rules and regulations required by the IRS.
 Exchangers/Investors can then exchange into another property they find or an institutional investment property. This involves purchasing interests in investment properties as tenants in common (TIC) allowing the exchanger to invest in institutional-grade properties, such as an office building, grocery anchored shopping center, multifamily apartment community, warehouse/distribution, or industrial property with a market value anywhere from $5 million to $150+ million. This permits the TIC investor to diversify their holdings into various types and sizes of properties that they could not afford on their own and in multiple geographic areas.
How Does A 1031 Exchange Work?
Doing a §1031 exchange is similar to doing an IRA rollover. When you do an IRA rollover, you have to transfer the retirement funds directly. As soon as you touch it, the proceeds become taxable.
It’s the same with a §1031 exchange. As soon as you touch the sale proceeds, they becomes taxable. Because there is a gap between when a property is sold and the next one is purchased. Someone besides the Exchanger has to hold the proceeds. The IRS requires this to be a Qualified Intermediary. A Qualified Intermediary company that has an excellent reputation in the Bay Area is

What Are the Requirements For a 1031 Exchange?
Briefly the requirements are:
  1. All of the net proceeds from the sale of the first property goes towards the purchase price of the replacement property in order to defer taxes.
  2. The net proceeds of the sale must be deposited with a QI (qualified intermediary) that holds these funds in trust until a new purchase property can be located and specifically identified.
  3. The net purchase price of the new property must be equal to or greater than the net sales price of the property just sold.
  4. 45 day timeline: the parties have 45 days as of the close of escrow of the first property to find and identify a replacement property to purchase.  You then have 180 days in which to close escrow on the replacement property.
  5. This process can be repeated almost in perpetuity as one can upgrade investment properties over the years, and defer paying capital gains taxes in this manner.
More information on 1031 Exchanges is available at
If you want to let us help you decide if the §1031 Exchange and Tenant-in-Common Institutional Investments are for you, call Jill Ballard at 408-828-6759 weekdays between 9am and 5pm


The information presented here is deemed reliable, though not guaranteed.
Equal Housing Opportunity.  All rights reserved.
Copyright© 2024 Intero Real Estate Services
Some parts Copyright© 2024
Powered by: Zealder Real Estate Website