Results Realty & Results Land Co. are your go to sources for extensive knowledge and experience with IRS Tax Code 1031 exchanges - both Forward and Reverse. A 1031 Exchange is a powerful wealth preserving tool that should be utilized when looking at selling an investment property.
The 1031 Exchange Rule
A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations. The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be "Like Kind" and both properties must be held for a productive purpose in business or trade, as an investment. The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a "qualified intermediary" (QI) and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale have to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.
The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.