A 1031 or Starkers Exchange makes it possible for investors to sell and buy property of like kind, while deferring capital gains taxes. When you sell an investment or rental property, you are subject to a tax from 15% to 30% on the profit you make, depending on your other income.
Section 1031 of the IRS code offers investors a reliable strategy for the protection of their real estate assets. A successful Exchange allows the investor to re-invest 100% of the equity from the sale of a property INTO the purchase of a chosen Replacement Property, without recognizing any gain. In other words, you can postpone paying the tax until you sell your next property...or beyond.
This type of property sale and reinvestment can either be done through a simutaneous transaction, or delayed 1031 Exchange. In most cases, it is done as a three-party delayed transaction. A qualified intermediary ensures a reciprocal transfer of the properties and provides a "safe harbor" against the actual receipt of Exchange funds.
The rules are strict and fairly complicated for a 1031 tax exchange. It is wise to allow a professional Exchanger to handle the transaction to avoid making a mistake.
