1031 Exchange: Here’s a Frequently Asked Question

Although it is in some sense a legal fiction, a Section 1031 Tax Deferred Exchange still requires an “exchange” of business or investment property, as opposed to merely a sale of relinquished property and subsequent reinvestment of proceeds into a replacement property.

If the taxpayer “touches” the sales proceeds, either actually or constructively, then it has realized the gain and capital gains tax will be due. As a result, in order to defer tax on the profit from a qualifying real estate sale, a taxpayer must structure a sale and purchase in strict compliance with the provisions of Section 1031 and its regulations to ensure that the transaction is viewed as an “exchange” rather than a “sale/reinvestment.” The services of a Qualified Intermediary in preparing the requisite exchange documents and handling the net proceeds during the interim period between a sale and subsequent purchase will facilitate a successful exchange transaction.

Rattikin Exchange Services, Inc. has assisted local, regional and national clients in Section 1031 Exchanges for over 30 years, making it one of the oldest and most prestigious exchange firms in the State of Texas. For more information on our Section 1031 Tax Deferred Exchange services, feel free to reach out to our founder, attorney Jeff Rattikin at rattikin@rattikinlaw.com.