JTS Associates Offers Section 1031 Exchange Guidance

Section 1031 of the Internal Revenue Code allows a business or investment property owner to waive federal taxes obtained from the sale of property if the profits are reinvested in other properties. It’s important to know that Section 1031 cannot be used for personal property. It can only be used by business owners or property investors who sell one property and reinvest the profits in another property. However, there are a few things to understand before using Section 1031.

• According to the IRS, the exchanged properties must be considered “like-kind”, meaning that they must have the “same nature, character or class.”
• You cannot personally receive the proceeds from the sale. The proceeds must be held in escrow by a third party and then the funds can be used to buy the new property.
• Pay attention to the following timing rules:
  • 45-Day Rule: You must assign the replacement property in writing to the third party within 45 days of selling your property so that they can receive the funds.
  • 180-Day Rule: This rule states that you must close on the new property within 180 days of the sale of the old property.

There is usually no limit on how frequently Section 1031 exchanges can be made. However, consulting with a Certified Public Accountant is always wise to ensure your Section 1031 exchange goes as smoothly as possible. JTS Associates CPAs offers Section 1031 exchange guidance and much more. Contact us at 516-877-5900 to schedule an appointment.