Types of 1031 Tax Exchange Structures

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Man shaking hands with the AdvisorProperty investment is currently among the best avenues for reaping bountiful profits. There are currently different incentives designed for property investors. One of these is the 1031 tax exchange. Thanks to the IRC, you can now defer your taxes from a property sale. If you are unsure, you can consult a tax exchange service like 1031 Exchange Place.

There are three primary tax exchange structures under 1031transactions. These include 1031 tax-deferred, reverse, and simultaneous exchanges. Here are a few facts about these tax exchange structures:

Delayed or Deferred Exchange

This is the most typical 1031 tax structure. It is also known as a forward exchange. In a delayed transaction, you as the exchanger will relinquish your property then acquire like-kind replacement property. You are required to identify a replacement property within 45 days and procure it within 180 days from the time of sale of your relinquished property.

Reverse Exchange

In this option, you are allowed to identify and close the purchase of a replacement property before you sell your relinquished property. Though common, a reverse exchange is generally tricky without a qualified intermediary. This is because you are not allowed to hold replacement and relinquished properties.

Simultaneous Exchange

In this structure, your replacement and relinquished properties are purchased at the same time using the same escrow office. A simultaneous exchange is logistically hard to accomplish, more so when the properties are in different states and cities. Only one party is allowed to handle a simultaneous 1031 transfer due to the complexity of the transaction.

These facts might make 1031 tax exchanges seem simple, but they are complicated. It is common for investors to be tripped by the many regulations set forth by the IRS. Get a knowledgeable 1031 tax professional to handle the transaction so that it suits your investment plan and overall goals.