The Stratus team has been involved in numerous 1031 exchanges and understands the nuances that can help make or break a successful exchange. Let us help you by putting our experience and knowledge to work through facilitating the entire exchange process, or a part thereof, guiding you through disposition planning, property identification, and successful consummation of the exchange.

What is a 1031 Exchange?

Section 1031 of the Internal Revenue Code allows an investor to defer gains from a sale if re-invested in a “like-kind” asset. Previously, many asset types were allowed, but as of 2018, only real property (real estate) assets are allowed to take advantage of this tax code provision.

Why Participate?

This tax code provision, if applied wisely, can be one of the single biggest wealth generators to an investor. By being able to invest all proceeds from a property sale, instead of only investing after-tax proceeds, one can substantially increase buying power.

How Does One Qualify?

The property being sold must be a real property (real estate) held for long-term investment. Generally, second homes or short-term property “flips” would not qualify. Once sold, all proceeds must be directly deposited with a qualified intermediary. The investor then has 45 days to identify replacement properties. Properties must be identified, in writing. Replacement properties can be identified in one of three ways:

  1. 3-Property Rule: Can Identify up to three (3) replacement properties without regard to their fair market value
  2. 200% Rule: Can identify any number of replacement properties so long as their aggregate fair market value of all replacement property does not exceed 200% of the aggregate fair market value of all relinquished properties
  3. 95% Rule: Can identify any number of replacement properties without regard to the combined fair market value, as long as the replacement properties acquired amount to at least 95% of the fair market value of all identified properties.

Exchange

The investor has up to 180 days from the time that the relinquished property was sold to purchase the replacement property(s)

Summary

The Stratus team considers 1031 exchanges to be an integral part of any well-managed real estate investment strategy and are happy to discuss in detail ways to integrate this into your personal wealth building model.

This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. The applicable tax codes apply to and relate to federal law only. Individual states may have their own additional tax codes. Please contact the appropriate tax and legal professional in your state. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation.