1031 Exchange

Although most tax shelters have been abolished, the tax deferred exchange remains as a valuable option. Through this process, an individual can continue their investment by selling one property, known as the relinquished property or first leg, and using the proceeds to purchase another property, known as the replacement property or second leg. The Internal Revenue Code § 1031 allows for the deferral of the capital gains tax by reinvesting in a similar "like-kind" property. This enables the taxpayer to reinvest the full amount of the sales proceeds without paying any capital gains tax.

To qualify for a tax deferred exchange under §1031, certain requirements must be met once the relinquished property has been transferred. The taxpayer must identify a like-kind replacement property within 45 days from the first closing and close on the replacement property (or properties) within 180 days of the closing of the relinquished property.