What is a 1031 Deferred Exchange and what are the general requirements?
The Tax-Deferred Exchange, as defined in Section 1031 of the Internal Revenue Code of 1986, as amended, offers real estate investors one of the last, great investment opportunities to build wealth and save taxes. By completing an exchange, the investor (Exchange Party) can dispose of investment property, use all of the equity to acquire replacement investment property, defer the capital gain tax that would ordinarily be paid, and leverage all of the equity into the Replacement Property. Two requirements must be met to defer the capital gain tax: (a) the Exchange Party must acquire “like-kind” Replacement Property, and (b) the Exchange Party cannot receive cash or other benefits (unless the Exchange Party pays capital gain taxes on this money). In any exchange, the Exchange Party must enter into the exchange transaction prior to the close of the Relinquished Property. The Exchange Party and the Qualified Intermediary enter into an Exchange Agreement, which essentially requires that (a)
