Why Do an IRC 1031 Exchange?
When an owner of investment real property (Taxpayer) sells the property, the sale often creates an obligation for payment of capital gains taxes. Section 1031 of the Internal Revenue Code of 1986 allows a Taxpayer to sell investment real property (Relinquished Property), have the proceeds used to purchase new investment real property (Replacement Property) and defer the taxes on the sale (the Deferred Exchange). A taxpayer may not simply sell Relinquished Property and use the money to purchase Replacement Property. The IRS and the Treasury Department have very strict requirements which must be satisfied in order for a Taxpayer to qualify for Deferred Exchange treatment (the Regulations). To qualify for a Deferred Exchange, the Taxpayer must enter into a valid exchange agreement (the Exchange Agreement) with a third party (the Qualified Intermediary). The Qualified Intermediary must hold the funds from the sale of the Relinquished Property and the Taxpayer and the Qualified Intermediary
