Careful adherence to the requirements of Section 1031 is required to maintain the tax-free status of the transaction. The primary requirements are:

• once the relinquished property is sold, the investor has 45 days to identify one or more desired replacement properties 
• the investor must not directly receive any of the proceeds from the sale, and
• the purchase of the replacement property (or properties) must be completed within 180 days of the sale of the relinquished property.

The sale of the relinquished property and the subsequent reinvestment into a replacement property can qualify as an exchange by using an exchange agreement and the services of a qualified intermediary. A qualified intermediary can guide you through the IRS regulations, making a 1031 exchange easy, inexpensive, and safe. You should have your accountant and/or attorney review any real estate transaction.  Your accountant or attorney cannot serve as your qualified intermediary.

When you need a qualified intermediary, look for a company that is well-respected, financially sound, bonded, insured, and keeps client money in separate, segregated, verifiable accounts.  To avoid greed, temptation, aggregation and high risk investments, they should charge a fee for their services and not be entitled to receive any interest from client accounts.  Look for a company that is a member of the Federation of Exchange Accommodators (FEA), an industry trade association.  You may also prefer a company that is affiliated with a bank or trust company.  We do not offer qualified intermediary services.  We do not receive any referral fees or commissions from qualified intermediaries.  

Disclaimer:  
If we mention any qualified intermediaries on our website or in other communications, we do not guarantee their performance and shall not be liable for their conduct or for your funds or your exchange results.  You should interview several companies, conduct your own due diligence, consult with your legal and tax advisors, and choose the company that you feel is best for your situation.

Often, the most difficult part of completing a 1031 exchange is identifying a desirable replacement property within the 45 day identification period.  In recent years, a new and innovative approach has appeared which makes it much easier for investors to find quality replacement properties within 45 days by buying a partial ownership of a larger property along with other investors as Tenants In Common (TIC).  A variety of properties are available including apartments, shopping centers, strip malls, business parks, office buildings, mini-storage warehouses, restaurants, child care centers and more.  

We can assist you in locating and analyzing 1031 replacement TIC property.  We do not offer any brokerage services.  We do not receive any referral fees or commissions from brokerage firms.  (You can also invest in TIC property directly, without doing an exchange.)

Please contact us to discuss your 1031 Exchange needs and read our section on Tenants In Common investments.

Other Alternatives to a 1031 Exchange.  

There are several other strategies to avoid or defer paying capital gains taxes on highly appreciated assets.  These include a Charitable Remainder Trust (CRT), Installment Sale, and an Insured Installment Sale.  (The Private Annuity Trust (PAT) is no longer available due to changes in tax regulations.)  These strategies may be useful if you have large capital gains in highly appreciated real estate, land, a business, stocks, bonds, mutual funds, collectibles, antiques, or art, and you would like to sell without paying capital gains taxes immediately on the gains.  A CRT may be suitable if you want to remove assets from your estate and give appreciated assets to charity.  Installment sales can be used where the owner is willing to provide owner financing and is protected by collateral.

While a 1031 exchange allows you to exchange "like kind" property (real estate for real estate), these other strategies allow you to sell a highly appreciated asset, while deferring payment of capital gains taxes over many years, and replace it with another asset type or investment portfolio that is designed to produce a lifetime income stream for you, while also removing burdens of real estate or business management.  Even better, these other strategies also reduce your estate taxes and increase your asset protection by removing assets from your estate.

Another strategy is to sell an appreciated asset and then use the proceeds to buy a working interest in oil and gas drilling program that generates large tax benefits that offset the capital gains tax on the appreciated asset. Intangible Drilling Costs (IDCs) are one category of deductible expense used for this purpose.  Working interests are available from brokerage firms and clearinghouse firms that market these direct participation programs (DPP).  We recommend that investments be made for their economic merit first, and with tax benefits as a secondary consideration.  An oil and gas investment should have good potential, experienced management, adequate risk management and long life.

Tax credit programs are another alternative.  An appreciated asset can be sold and then the proceeds invested in a program that generates tax credits.  One popular program uses newly constructed apartments for low income senior citizens.  It generate tax credits for about 10 years which pays you back the cost of the investment.  The tax credits are used to offset any taxes due on the sale of the appreciated asset.