Guide to 1031 Exchanges

Explore the types of properties to swap for 1031 exchanges

You cannot exchange a property you own for personal purposes, such as your home. The two pieces of swapped real estate in a 1031 tax deferred exchange do not have to be identical; they simply have to both be properties held for investment or used in a trade or business.

I recommend: Check  IRS Publication 544 (Sales and Other Dispositions of Assets) for the official word on 1031 exchanges and download Form 8824, which must be filed in connection with 1031 tax deferred exchanges. Use the online search option at 1031 Help Center to examine property listings that might meet your 1031 tax exchange needs.

Examine the many ways to achieve 1031 tax deferred exchanges

While two pieces of real estate can be swapped property for property, this simultaneous method is not the only way to accomplish a 1031 tax exchange.

I recommend: Bayview Financial Exchange Services offers a variety of resources to help you understand the various exchange options, from simultaneous swaps to 1031 reverse exchanges.

Understand the role of 1031 exchange companies

Federal law prohibits an investor from receiving or having access to funds generated from the first leg of the 1031 exchange, i.e., the sale of the initial investment property. Rather, you must use a Qualified Intermediary, typically provided by 1031 exchange companies, to safeguard the funds produced by the sale of the first property.

I recommend: The Federation of Exchange Accommodators is the official national trade association for professionals who conduct 1031 tax deferred exchanges. Although the site does not offer a referral service, you can check for the FEA seal on sites such as Accommodator Finance Company, Bayview Financial Exchange Services and Exchange Authority. But don't necessarily rule out other 1031 exchange companies, such as 1031 Exchange Options and 1031 Equity Advisors, simply because there's no logo on their websites.

Learn the language of 1031 exchanges

It's a good idea to learn the basic lingo for 1031 tax deferred exchanges, which are also referred to as Starker exchanges. Knowing the terminology can help keep you from making a costly exchange mistake.

I recommend: For 1031-specific terms, check out the glossaries at 1031 Exchange Guide, 1031x.com and 1031-Exchange.com.

Compute your capital gains savings with 1031 tax exchanges

Your accountant, financial adviser or exchange intermediary can help you figure out exactly how much in tax savings you'll gain via a 1031 tax deferred exchange. But online calculators are a great way to get an approximation of the capital gain taxes you will defer via a 1031 exchange.

I recommend: A couple of good online calculators are available at 1031 Exchange Options and Spectrus Real Estate Group.