Frequently Asked Questions

Discover the benefits of a 1031 Tax Exchange.
What is a 1031 Exchange?

A 1031 Exchange allows a real estate investor to defer their capital gains taxes upon the sale of a property to apply those gains to new investment property. Simply put, a 1031 Exchange is a swap of one investment property for one or more that goes unrecognized for tax purposes. A tax-deferred exchange allows an investor to keep what would have been paid to the government, resulting in more money to invest in new property acquisitions. A 1031 Exchange is a powerful tool to build wealth and a smart resource for savvy real estate investors.

How does a 1031 Exchange work?

When you are ready to sell a property, 1031 QualEx, as a QI, works with the closing/escrow agents to get Exchange documents signed and the Exchange properly shown on all closing documents, and to receive funds generated from the sale. We hold those funds until you’re ready to use them to purchase your replacement property(ies). We again work directly with the closing agent on the same short process. The funds that would have otherwise been paid to the IRS in capital gains taxes can be reinvested into larger properties, or more properties, or other strategic moves for your real estate portfolio.

What does the QI do?

The QI holds the sale proceeds in an escrow account for the benefit of the taxpayer during the exchange. The QI will disburse funds for the purchase of replacement property(ies) or return any unused funds to the Exchanger at the end of the exchange period. Per Section 1031 Exchanges must be completed within 180 days.

Why should I use a QI to do my exchange?

1031 QualEx will keep records of your 1031 Exchange process start to finish and prepare all the correct paperwork needed to file your taxes with. QualEx will also ensure that any specifics of the 1031 tax code and timelines are met.

What type of property qualifies for a 1031 exchange?

1031 Exchanges defer Capital Gains Tax on the sale and replacement of investment properties. 1031 funds cannot come from, or be used on, residential property. Many people are surprised to learn that an “investment property” includes almost all real estate properties other than your residence.  If you have a small farm, or vacant land, you probably own an investment property whether you realize it or not. In cases where a property contains both a residence and acreage, your tax preparer probably already shows these as separate assets on your tax return.  Upon selling, you need to determine the appropriate value for both portions.  Funds from the residence go under residential regulations, and funds from the acreage fall to Capital Gains Tax rules.

What does Like-Kind mean?

The term Like-Kind distinguishes from what attorneys call real property (real estate) vs. personal property (basically everything that isn’t real estate). While 1031 Exchanges were common with certain types of personal property in the past, that is no longer allowed. In the context of a 1031 Exchange today, we are working with real estate interests only and all real estate interests are like-kind to each other. In short, all real estate is like kind to other real estate, whether it’s a vacant parcel, apartment complex, retail center, gas station, farm, condo, etc. Any type of real property can be exchanged for another type of real property.

Can 1031 QualEx do a 1031 exchange for in any state?

Absolutely! We can do a 1031 Exchange for any property in any of the 50 states.

How much time do I have to find a replacement property?

45 days after the closing of the Relinquished Property, Replacement Properties must be identified. 180 days after the closing of the Relinquished Property, all closings on Replacement properties must be closed and the money used.

What is Capital Gain Taxes?

Capital Gains are what the IRS considers the profit/loss to be on an investor’s sale. The current tax rate is 15% or 20% depending on the taxpayer’s income, for most real estate transactions. Your Capital Gain is generally a function of your initial purchase price, depreciation if used (these go into your Adjusted Cost Basis), and your sale price less required costs. This is not a perfect formula for all taxpayers but is a useful start for most.

Can I sell one property and have more than one replacement property?

Yes, in most cases you can have up to three replacement properties.

Does the tax ever go away?

No, a 1031 Exchange allows you to delay taxes. It does not eliminate the capital gains tax.

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