What paperwork is needed for a 1031 exchange?

The purchase and sale agreement is standard documentation in any real estate sale. The difference here, however, is that this agreement must contain language clearly stating that a like-kind exchange will take place. It also specifies that the Qualified Intermediary (QI) will handle all parts of the exchange process.

What does section 1031 apply to?

Section 1031 allows investors in business properties to defer taxes on the profits of properties sold in order to raise cash to purchase other properties. It is sometimes called the Starker Loophole because the sale and purchase do not need to be simultaneous to qualify for the tax deferral.

Who must file Form 8824?

Use Parts I, II, and III of Form 8824 to report each exchange of business or investment property for property of a like kind. Certain members of the executive branch of the Federal Government and judicial officers of the Federal Government use Part IV to elect to defer gain on conflict-of-interest sales.

How long does it take to set up a 1031 exchange?

It can take 5 days, 45 days, or all 180 days. You must complete your 1031 exchange within 180 days of selling your old property by purchasing one or more of the properties on your list.

How does a 1031 exchange work with rental properties?

The intermediary holds the funds after one property is sold in the 1031 exchange and uses that money to buy the new replacement property. When doing a 1031 exchange, the owner must identify the property he is exchanging and declare it before the sale.

Do you have to pay taxes on 1031 exchange?

When using 1031 tax codes, you could continue to exchange properties for as long as you want. Ultimately, however, you would need to pay the taxes on these properties. When you decide to sell one of the like-kind properties, you would need to pay relevant taxes as well as all of the taxes that were tax-deferred throughout your exchanges.

What does section 1031 of the Internal Revenue Code mean?

Section 1031 of the Internal Revenue Code allows a taxpayer to defer the recognition of gains (or losses) on an investment property when sold if the relinquished property is exchanged for a like-kind replacement property.

Can you sell a primary home to purchase a 1031 exchange?

3. Investment Rule It is not permissible to sell a primary residence to purchase an investment property through the 1031 rule. Likewise, you cannot sell an investment property to purchase a primary home with this rule. 4. Debt & Equity in the 1031 Exchange