Best Tax Professional Website for 1031 Exchange - Like Kind Exchange

A 1031 exchange, named after Section 1031 of the Internal Revenue Code (IRC), allows real estate investors to defer capital gains taxes when they sell a property and reinvest the proceeds into another like-kind property. This strategy helps investors preserve capital, grow their portfolios, and delay tax liabilities.

How Does a 1031 Exchange Work?

1. Sell an Investment Property – The investor sells a property and does not receive the proceeds directly.
2. Use a Qualified Intermediary (QI) – A third party holds the funds from the sale to ensure compliance with IRS rules.
3. Identify a Replacement Property – Within 45 days, the investor must identify potential properties to reinvest in.
4. Complete the Exchange – The investor must acquire the new property within 180 days from the sale.
5. Defer Capital Gains Tax – No taxes are owed on the sale as long as all proceeds are reinvested in a like-kind property.

How a 1031 Exchange Saves Taxes

• Defers Capital Gains Tax – Normally, when selling an investment property, the owner pays capital gains tax (up to 20%) on profits. A 1031 exchange allows them to reinvest the full amount instead.
• Avoids Depreciation Recapture – Without a 1031 exchange, depreciation deductions taken over time are taxed as depreciation recapture (up to 25%). The exchange postpones this tax.
• Compounds Wealth Growth – By deferring taxes, investors maximize reinvestment into new properties, leveraging higher returns and appreciation over time.
• Allows Estate Planning Benefits – If the investor holds properties until death, heirs receive them at a stepped-up cost basis, potentially eliminating capital gains tax altogether.

Best Example

1031 Exchange Connection is a bonded and insured Qualified Intermediary for over 20 years of experience facilitating 1031 Exchanges.  

1031 Exchange Connection - Like Kind Exchange