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What is a 1031 Tax Deferred Exchange?

No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property or like kind which is to be held either for productive use in a trade or business or for investment."

The above is an excerpt from Section 1031 (a)(1) of the US tax code.

What this means:
Tax can be deferred to a later time if  an Investment Property is exchanged for a like kind Investment Property, however the Tax Payer's primary residence does not apply.

What is "Like Kind" Property?

There is some confusion regarding what type of property may qualify for 1031 exchange. Current I.R.S. definitions label "like kind" property as any real property which is used in a trade/or business or which is held for investment.

A taxpayer may exchange any investment/trade or business property for any other property which would be held for investment/trade or business. The property types may differ.

A 1031 Exchange allows a Seller to complete a non-simultaneous exchange. Surety Title acts as Qualified Intermediary holding the proceeds for the sale while the Seller looks for like kind property. The funds are placed in an interest bearing account, for the Seller's benefit, until needed for the purchase of replacement property.

Why do I need a Qualified Intermediary?
To avoid transaction being considered as between "related parties," and thus possibly being disqualified by the I.R.S. A Qualified Intermediary is anyone that is not a disqualified person in the transaction, such as a related party or an agent of the taxpayer. An exchange which is properly set up with a Qualified Intermediary ensures a safe harbor from the actual and constructive receipt issue.
Who holds the sale proceeds?
One of the main provisions of the 1031 tax deferred exchange is that the taxpayer cannot have actual constructive receipt of the proceeds during the exchange period, which could result in the loss of the intended tax benefits. The Qualified Intermediary must hold the funds. At Surety Title, with the safety and security of the proceeds as a major concern, all accounts are set up separately and are in FDIC insured accounts or Treasury Funds with interest accruing to the exchange deposit as growth factor.

How can Surety Title assist you?

  1. Acting as a Qualified Intermediary for the exchange, and as such hold money in an interest-bearing account for the taxpayer's benefit during the exchange period.

  2. Providing closing and title insurance services on the relinquishment and replacement properties.

  3. Providing personal presentations, to an individual or group, for a more in-depth understanding of 1031 Tax Deferred Exchanges.

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Surety Title Services of Florida provides Title Services in Clearwater, Tampa and the entire State of Florida. Surety Title Services of Florida specializes in closings, 1031 exchange, title insurance and more. Let Surety Title Services of Florida be your source for all of your title service needs. Founded by Marianne Sharp, Surety Title Services of Florida has many years of combined experience.  With continuous research into the latest changes in Real Estate Law, coupled with the latest technology such as Virtual Docs, FandMail, Digital Docs, and Paperless Closings, Surety Title Services of Florida serving Clearwater, Tampa and the entire State of Florida provides peace of mind that you are looking for.