what does ideal 1031 exchange property mean?

In Buying Property - Asked by feng z. - Jan 3, 2010
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Answer(s)

Bobbi L.
Broker/Agent
Honolulu, HI

The ideal 1031 exchange preserves gain in an investment and allows financial growth and security for the investor.

Jan 4, 2010
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David P.
Broker/Agent
Lenexa, KS

A 1031 Exchange is a reference to IRS Code 1031 which allows a property owner to sell an existing real estate property or business and defer (not avoid) capital gains by purchasing a replacement property within a set time frame and various other parameters. A seller can not directly receive the proceeds from a sale and the proceeds are held by a qualified, independent deferred exchange agent who holds them to be applied to the new property purchase once determined. 1031 exchanges are a fairly common practice in commercial real estate, but requires a qualified and knowledgeable deferred exchange agent which as noted must be independent (not your Realtor, accountant, banker, attorney). Many title companies can provide this service as well there being a number of national services, including one referenced below. I strongly recommend reviewing this with your accountant and attorney who can review for applicability to your property sale as he or she should be able to reference IRS rules and regulations. Again, the actual 1031 requires an independent party. The original property sales contract should contain a notification related to this being a 1031 sale.
As far as the reference to "ideal 1031", I suspect that this Seller might be a referencing that that property's owner is open to 1031 exchange and that the property may be a net leased (NNN) income property which involves limited owner involvement as 1031s are often very appealing to retiring business owners who desire to defer their capital gains and keep an income stream from their efforts, but don't want the responsibilities of property ownership or management. AGAIN, consult your accountant for specifics.

Jan 4, 2010
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