Whenever you sell land, investment or business property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in other investment property. Be sure to work with a professional who specializes in 1031 Exchanges, as failure to follow the IRS guidelines will forfeit your exchange.
Some of the strict guidelines are:
- All proceeds from the original property sale must go through the hands of a “Qualified Intermediary” (QI) and not through your hands or the hands of one of your agents.
- You have specific and unforgiving timelines in which to identify and close on your replacement property/properties.
- You must ensure your legal documents are in compliance with the laws and regulations for 1031 Exchanges.