| The Section 1031 Exchange of Internal Revenue | | | | the value and debt of the property being |
| Service (IRS), also known as Starker Exchange or | | | | exchanged. For example, a raw land which is |
| Tax-Deferred Exchange, clearly states that there | | | | worth $600,000 can be exchange for $300,000 |
| are no gains and losses incur on exchange of | | | | rental houses, and $300,000 retail properties. |
| like-kind property. Without gains or losses, the | | | | There are a number of reasons to exchange a |
| exchange of property defers the tax. Like-kind | | | | property. The common reasons for exchange are |
| property means same nature or character. And, | | | | rebuilding equity, moving investment location, |
| the property for exchange must be used for | | | | upgrading size, reducing maintenance expenses, |
| business or investment purpose in order to qualify. | | | | and maximizing the appreciation. |
| The qualified property includes apartments, rental | | | | First, the owner proceeds with the regular sale of |
| houses, retail properties, commercial, raw land, | | | | property. After the completion of purchase and |
| office buildings, industrial, and ranches. The | | | | sale agreement, the owner takes the agreement |
| non-qualified property includes personal residences, | | | | and notifies of 1031 exchange to closing agent. |
| dealer properties, partnerships interests, | | | | Then, the Qualified Intermediary (QI) who handles |
| inventory, stocks, bonds, notes, securities, | | | | the exchange gets the information to closing |
| indebtedness, and other properties. | | | | agent, and sets up the proper papers for |
| IRS also permits to mix and match the nature or | | | | exchange. Within forty days, the owner writes |
| character property. For example, you can trade | | | | and gives a list of replacement property to the |
| an apartment for rental house. And, IRS gives the | | | | QI. In one hundred eighty days, the owner signs |
| owner of the property forty days to produce a | | | | the completion of purchase and sale agreement |
| list of possible trades, and one hundred eighty | | | | with 1031 Exchange Clause of the replacement |
| days to complete the exchange of property. | | | | property. Finally, the QI contacts the closing agent |
| The owner can also exchange two, three, or | | | | on replacement property to complete the 1031 |
| more property for one property. The general rule | | | | Exchange. |
| is the replacement property exceeds or matches | | | | |