What is a 1031 Exchange?

What is a 1031 Exchange?

What is a 1031 Exchange? Here is a brief explanation of what you need to know about a 1031 exchange for a like-kind property.

In real estate, a 1031 exchange is an IRS code that investors use to move money from one property into a like-kind property without having to pay the capital gains taxes on the initial sale at the time of the sale.

As per the IRS, you cannot own both properties at the same time. You need to hire an accommodator, a 1031 exchange company. When you sell your first property, called your "downleg", your accommodator will hold the proceeds money in a bank account for you. Then, you have 60 days to identify and select your like-kind purchase, called your "upleg". You can identify up to 3 properties for a potential upleg. From the time you close on your downleg, you have 180 days to close on the purchase of your upleg. The accomodator will be involved in both transactions and will take the proceeds form the downleg and put them straight inot the upleg so you, the principle, never touch the money.