FAQ

A 1031 Exchange stems from IRS Code Section 1031 and allows for an investor to defer his capital gains tax during the sale of an investment property through an exchange of sale proceeds of an existing property being used in the purchase of a new property.

By utilizing a 1031 Exchange an investor is able to defer that capital gains taxes owned by utilizing the funds from the sale of their existing investment property to exchange into the purchase of a new one. There are guidelines that an investor must adhere to, but a 1031 Exchange is one way to defer capital gains tax.

There are many rules to a 1031 Exchange, but the most critical ones are the deadline rules.  

1. 1. 1. After the sale of your property, you have 45 days to identify one or more property you would like to exchange into.
      2. Within 180 days of your sale, you must complete the exchange or incur capital gains tax

When you sell a property that is eligible for a 1031 Exchange, the proceeds go to an exchange accommodator. The accommodator oversees the 1031 transaction, distributes the exchange proceeds to the escrow for the purchased property at closing.

If you are looking for the answer in 2021, the answer is certainly ‘no’. The Tax Cuts and Jobs Act of 2017 signed into law by President Donald Trump on December 22, 2017 clarified the requirements for an exchange to qualify for tax deferral under section 1031 of the Internal Revenue Code. As you might guess, that clarification provides that only real property (as defined in final IRS regulations issued in late 2020) that is held for investment purposes qualifies for a 1031 exchange. Unfortunately, stocks, bonds, or other evidences of indebtedness are all excluded from the definition of real property and thus do not qualify.

In a reverse 1031 Exchange, an investor first purchases the property he wants to trade into before selling his current property.

No, for a property to qualify for a 1031 Exchange it must have been an investment property for the last two years before it can qualify.

You can sell it at any time, however then your deferred capital gains tax will become due.

There are two main rules when it comes to the number of properties that you can identify when doing a 1031 Exchange.  Those are:

1. 1. 1. 200% Rule:  An investor can identify a property worth up to 200% of the original building that the investor sold
      2. 3 Property Rule: An investor can identify one, two, or up to three properties for their exchange

No. The property must have been used for investment purposes for at least 2 years prior to being considered for a 1031 Exchange

No. 1031 exchanges are for investment properties only

After the closing of the sale of an investment property, the investor has up to 45 days in which to identify the property that he would like to trade into. From the date of closing, the investor has 180 days, in which he must finalize the transaction.

If this home is used for investment purposes and has so for at least the past two years, it may be considered for a 1031 Exchange. However, each individual’s case is different and you should consult a professional if considering a 1031 Exchange.

Yes, as long as it is not your primary residence and is like-kind property. You must also be fully aware of how you will replace the net proceeds and debt. Furthermore, improvements made on a property do not qualify for tax deferral under a 1031 Exchange but can be treated as a deduction on a Schedule E form.

TFS Properties is a full-fledged real estate brokerage that focuses on 1031 Exchange Planning & Commercial / Residential Real Estate. Our relationships with key brokers & acquisitions teams give us access to properties before they hit the open market. We focus on out-of-state commercial real estate but assist with listings in Los Angeles where our offices are located.

Off-Market Properties available: NNN / Multi-Family / Government & Medical Facilities / Out-of-State / Single-Family Rentals / Brand New Development & More.

A cap rate (also known as a “capitalization rate”) is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and the original capital cost (the price paid to buy the asset) or alternatively its current market value.

Cap Rate = Net Operating Income (NOI) / Fair Market Value

The best time to do a 1031 Exchange is when you have an appreciated asset & would like to defer the state & federal capital gains tax.  Most of our investors are looking for in increase in monthly cashflow and as such trade into such a property, through a 1031 Exchange.  It is best to sit down with an Investment Agent & Tax Preparer prior to listing your property in order to maximize your exchange. 

Real estate can be purchased directly through a trust, LLC, LP, self-directed IRA, transferred from an existing IRA / Roth-IRA, or rolled over from a qualified plan and/or 401(k).

Our 25+ years of experience in real estate & database of over 10,000+ real estate investors make it easy to find a buyer for your qualified property.  In addition, TFS Properties helps investors identify & close escrow on high-quality replacement properties with high cap rates (%).

Yes.  Investors are able to invest through an LLC or trust.

When performing a 1031 Exchange you can only exchange U.S. Property for U.S. Property and foreign property for foreign property.