Section 1031 of the Internal Revenue Code provides an exception from the general rule which requires that gain or loss be recognized on the sale or exchange of property. The exception is only from the current recognition of gain. When property is disposed of in a subsequent taxable transaction, gain (or loss) is recognized.
Justification for this exception is based on Congress’ desire to avoid imposing a tax on theoretical gain where taxpayers continued their investment in like-kind property. Congress believed that the taxpayer’s economic interest would not be altered sufficiently to justify taxing them.
To qualify for non-recognition treatment, these requirements must be met:
- An exchange is required
- Qualifying real or personal property must be exchanged
- Property must be held for productive use in a trade or business or for investment purposes
- The relinquished property must be like-kind with the replacement property.
- Property to be received by the taxpayer must be identified on or before the 45th day after the date the taxpayer transfers the property relinquished in the exchange
- Property to be received by the taxpayer must actually be received before the earlier of
- 180 days after the date the taxpayer transfers the relinquished property (no extension for weekends or holidays) or
- The due date (including extensions) for the transferor’s tax return for the taxable year in which the transfer of the relinquished property occurs.
Tax free exchange treatment does not apply to any exchange of:
- Inventory or other property held primarily for resale to customers
- Stocks, bonds or notes
- Other securities or evidence of indebtedness interest
- Interest in a partnership
- Certificate of trust or beneficial interests
- Choses in action
- Real property located in the U.S. for real property located outside the U.S.
- Real property for personal property
- An exchange of livestock of different sexes.
There are many and varied aspects to Section 1031 Tax-Deferred Exchanges, and you will need knowledgeable and experienced guidance such as that provided by the staff at Coffelt Land Title, Inc.
Contact the Escrow Closing Professional at the office nearest you. (See our list of locations for a complete listing of personnel.)
|Sale Price of Exchange Property||Set-Up Fee|
|$100,000.00 or less||$250.00|
|Over $100,000.00 and up to $500,000.00||Additional $1.00 per thousand|
|Over $500,000.00||Additional $.50 per thousand|
The fees listed above cover the costs of preparing documentation and service as Intermediary.
An additional fee of $75.00 per 1031 Exchange Agreement will be charged for setting up an interest-bearing account with the bank of Exchangor’s choice.
An additional fee of $25.00 per month will be charged for servicing the bank account.