• There are several requirements that must be met to qualify for the tax deferred treatment under §1031.
• You must hold both the property traded and the property received for business or investment purposes.
• The property traded and received must not be held primarily for sale, such as inventory.
• The properties must be tangible. This means it cannot be stocks, bonds, notes, securities, evidences of debt, or partnership interests.
• The properties must be of a like kind. (E.g. real estate for real estate.)
• Timing rules must be satisfied:
  You must make a written identification of the “replacement” property within 45 days of the transfer of the “exchange” property.
  You must receive the “replacement” property by the earlier of 180 days after the transfer of the “exchange” property or the due date of the tax return for the year of transfer.
• Process of Likekind Exchange.  A 1031 tax free exchange can be either simultaneous or deferred. A simultaneous exchange takes place when you trade your property for property owned by another. Simultaneous exchanges are rare. In a deferred exchange, property is transferred to a qualified intermediary. The qualified intermediary in turn sells your property and purchases the new property on your behalf. Our law firm also provides services as a qualified intermediary.
• Examples

Example 1
John inherited a parcel of land from his father twenty years ago. At the time he inherited the land, it had a fair market value of $10,000.00. Today it is worth $350,000.00. A developer has recently contacted John about purchasing his land. John would like to use the sale proceeds to purchase an apartment building that is valued at $500,000.00. He uses a qualified intermediary, and thereby defers the payment of capital gains tax in the amount of $51,000.00. Below is a chart that compares an outright sale of the land versus a 1031 exchange.

SALE	Example	EXCHANGE
$350,000	Sales Price	$350,000
($21,000)	Closing Costs	($21,000)
($51,000)	15% Capital Gains Tax	0
$278,000	Available to Reinvest	$329,000

Example 2
Sue has decided to sell a duplex that she purchased as an investment property ten years ago for $70,000.00, and is now worth $750,000.00. Her real estate broker has found an office building valued at $1,000,000.00 that she would like to purchase. She uses a qualified intermediary, and thereby defers payment of capital gains tax in the amount of $102,000.00. Below is a chart that compares an outright sale of the duplex versus a 1031 exchange.

SALE	Example	Exchange
$750,000	Sales Price	$750,000
($45,000)	Closing Costs	($45,000)
($102,000)	15% Capital Gains Tax	0
$603,000	Available to Reinvest	$705,000