Considering a Tax Deferred Exchange "1031 Exchange"

A 1031 exchange, commonly referred to as "tax deferred exchange", is a simple strategy of selling one property, that's qualified and then proceeding with the purchase of another property, that also qualifies, within certain time frames established by the IRS.

The "1031 exchange" is unique because is allows the transaction to be treated as an exchange of one property for another and not just as a simple sale. It is this difference (exchange vs. buying and selling) which allows the taxpayer to qualify for a deferred gain treatment and in the end defer capital gain taxes.

To qualify, the taxpayer must sell and purchase "like kind" property, which generally is real estate (and must be property held for the production of income) and comply with 2 specific time lines established by the IRS.

First the taxpayer must identify the replacement property within 45 days from the day of selling the first property (referred to as the relinquished property).

Second, the taxpayer must close on and receive the replacement property within 180 days after the date on which the taxpayer transfers or closes on the sale of the relinguished property.

If you think this type of transaction might benefit you, then it is important that you check with your attorney or tax advisor before electing to proceed with a tax deferred exchange. In addition, it is important to chose a reputable qualified intermediary to assist with the transaction.

First Nebraska Title & Escrow Co., can provide valuable services as a Qualified Intermediary and is available to answer your questions relating to tax deferred exchanges.