The 1031 Exchange… Like Mining for Gold in the Tax Code

Despite popular belief, the Internal Revenue Tax Code is actually littered with little golden nuggets of tax relief. Who knew? Some of these nuggets are well known and easy to navigate like the tax deduction for interest paid on your home mortgage. Then there’s Section 1031 of the Internal Revenue Code. Oh sure, the benefits of a “1031 tax deferred exchange” are well known, but this element of the tax code is certainly not easy to navigate. But here’s the good news. Just knowing this gold nugget of tax relief even exists is half the battle!

Simply defined, the 1031 Exchange is a mechanism to defer Capital Gains Tax from the financial gain from the sale of property. So, let’s first consider that having a financial gain from the sale of property is a good thing. And knowing that taxes on that financial gain can be deferred makes a good thing even better. Like adding bacon to your favorite burger!

Another very basic element of the 1031 Exchange is that it may not be for you, so it’s best to evaluate your unique circumstances. Because, besides a financial gain, there are several other elements needed before participating in a successful 1031 Exchange. They include: your accountant, a third-party accommodator, an informed real estate agent, a settlement agent, and an experienced lender, just to name a few.

Putting together an A-team to manage your 1031 Exchange is the key. Then, once a decision is made to pursue the tax deferral, later comes the process of identifying “like-kind” property (within 45 days of the sale of the relinquished asset) and closing on the property (within 180 days of sale). Like-kind refers to any real property held for investment so there are many options available. In fact, capital gains can even be avoided completely… So the gold is there!

If you are in those early stage evaluations and need a bit of guidance, please allow the Anfield team to help you mine for the “1031, tax-deferred” gold in the Tax Code!