Since 1921, the Internal Revenue Service has provided United States citizens and non and resident aliens the ability to defer recaptured depreciation and federal capital gains tax on the sale of an investment property as long as an investment property of equal or greater value and equity is purchased. Section 1031 today, is used by savvy investors to receive an interest free loan for an indefinite period of time, effectively maximizing the use of available investment dollars.

Real and personal property held in the production of income or in a business qualifies for 1031 consideration. Real property not eligible includes your personal residence, partnership interests, debt, stock and bonds and inventory. Eligible property includes rental houses, condominiums, land, farms, ranches, oil, mineral, timber and water rights, 30 year leasehold interests, shopping centers, hotels, nursing homes, and marinas.

Qualified Intermediaries were placed in the code in 1991. They provide two primary functions: submit exchange documents to be signed at the first of two closings and secondly, to act as steward for your exchange funds such that you are unable to pledge, borrow or receive benefit of the exchange proceeds while held by the intermediary. 

All intermediaries are not created equal. Be sure they have a fidelity bond and carry errors and omissions insurance. Ask whether the funds are held in a non commingled interest bearing account, is the intermediary certified and what the intermediary’s experience is with the type of exchange considered. There are many types of exchanges.

The first step is to seek the advice of your accountant to determine whether an exchange makes sense for you. Next and prior to selling your property, engage a qualified intermediary to begin the process. To learn more about Section 1031 and Atlas 1031 Exchange click here.























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