1031 Like-Kind Exchange: Who Qualifies and What You Get
Learn how to defer capital gains taxes when swapping real estate or business assets through a 1031 like-kind exchange.
A 1031 like-kind exchange allows you to swap one investment property or business asset for another while delaying the taxes you would normally owe on the profit.
Who it's for
This is designed for individuals and entities that invest in real estate or hold certain types of business assets. It is intended for investment or business use rather than for personal property like your primary home.
What you get
The primary benefit is the deferral of capital gains taxes. Instead of paying taxes on the profit from a sale immediately, you can reinvest that money into a new, similar asset to grow your wealth.
What it costs you
To use this method, you cannot hold the money yourself during the transition. You are required to use a qualified intermediary to hold the funds and manage the swap to ensure the tax deferral remains valid.
The catch to know
The timing is very strict. You must identify the new property you want to buy within a 45-day window after selling your current asset, and you must complete the purchase of that new asset within 180 days.
How to apply
- Consult with a professional to ensure your assets qualify as "like-kind."
- Hire a qualified intermediary to manage the exchange process.
- Identify your replacement property within the required 45-day window.
- Complete the closing on your new asset within the 180-day limit.