There are several types of 1031 tax deferred exchanges, but in general a 1031 exchange is a legal method of selling property that allows a taxpayer to defer federal capital gains taxes (and often state taxes) when transferring a Relinquished Property in exchange for a Replacement Property. Relinquished Property is the property that is given up or conveyed by the taxpayer, while the Replacement Property is the property received by the taxpayer as part of a 1031 exchange.
The Internal Revenue Code provides many limitations and requirements for a 1031 exchange. For example, the exchange must be for “like-kind” property (i.e. US real property for US real property) that has been held for investment purposes or for use in a trade or business. Further, the taxpayer must identify a limited number of replacement properties on or before 45 days after the transfer of the relinquished property. This 45-day period is known as the identification period. Running concurrently with the identification period is the exchange period. During the exchange period, the taxpayer must receive the replacement property within the earlier of either: (1) 180 days from the date the relinquished property is transferred; or (2) by the filing date of the taxpayer’s income tax returns filed for the year the sale of the relinquished property occurred. Also, a qualified intermediary must facilitate the exchange on behalf of the taxpayer.
If you are looking for free information about 1031 exchanges, the links below provide ample information regarding the Internal Revenue Code, Regulations, Private Letter Rulings, and Cases.
The official IRS guidance for the Tax Code and Regulations links to the Legal Information Institute of Cornell University Law School . Section 1031 of the Code is available for free on the Cornell Law School website. In addition to the full text of section 1031, the Cornell Law School website provides amendments to the Code under the Notes tab and Private Letter Rulings under the IRS Rulings tab located near the top of the browser window. More information about the Private Letter Rulings can be found on the IRS website.
Internal Revenue Service
IRS Forms and Publications
Commercial Partners Exchange Company, LLC
Step by Step Explanation of the Typical 1031 Procedure
Like-Kind Exchanges Under IRC Code Section 1031
Starker v. United States, 602 F. 2d 1341 (9th Cir. 1979)
2015 Private Letter Rulings
- Like Kind Property 2015-08-07
- Like Kind Property 2015-07-31
2014 Private Letter Rulings
- Deferred Exchanges 2014-09-12
- Deferred Exchanges 2014-04-18
- Exchange of Property Held for Productive Use or Investment 2014-04-18
- Exchange of Property Held for Productive Use or Investment 2014-03-14
- Deferred Exchanges 2014-02-21
- Exchange of Property Held for Productive Use or Investment 2014-02-21
2013 Private Letter Rulings
- Exchanges Not Solely in Kind 2013-06-21
- Exchange of Property Held for Productive Use or Investment 2013-03-29
- Deferred Exchanges 2013-02-22
- Exchange of Property Held for Productive Use or Investment 2013-01-11
About the Author:
Jeffrey Peterson is the president of Commercial Partners Exchange Company, LLC. He received both his B.A. and his J.D. from the University of Minnesota, and is a member of the Minnesota State Bar Association and the Tax Section of the American Bar Association. He is also a former adjunct tax law professor at William Mitchell College of Law and instructor for Kaplan Real Estate Education.