1031 Exchanges, NNN Leases

Defer tax with a 1031 Exchange

Please Note the following article on 1031 exchanges is not to be taken as legal or taxation advice. It is intended as a guide to NNN leases and 1031 exchange only. If you require proper advice please consult a legal professional.

Many businesses and investors in property are not aware of the savings offered by 1031 exchanges to save money on capital gains taxes. Under section 1031 of the Internal Revenue Code, federal capital gains taxes may be avoided (deferred) when an investments or business property is exchanged as opposed to sold.

1031 Exchange Basics;

• Most sellers of business and investment properties will pay capital gains (federal) tax of 20% for the appreciation and 25% if any depreciation less sale cost.
• Most states impose income tax on the sale of business or investment property, many recognize deferral of such taxes for a 'Like Kind' Exchange under Section 1031 (IRS).
• Property exchanged must be an investment.
• Payment of federal capital gains and most state income taxes is deferred until the property received in the exchange is sold.
• A sale of investment or business property must be followed by a reinvestment in another property, and this must be setup before the property to be transferred is sold. Failure to have an exchange set-up does not qualify as a proper 1031 exchange.
• In independent qualified third party (acting on the investors behalf) must be used to facilitate the 1031 exchange and satisfy the requirements bound by the IRS for a valid exchange. Using a qualified intermediary ensures favorable taxation on income.
• To defer capital gains a property of equal or greater value must be acquired and all of the previous properties equity must be invested into the new property.
• Exchanging property has a 45 calendar day period after closing in which to find up to three properties for acquisition. After this period the investor has up to 180 calendar days to acquire these identified properties.
• All properties must be of a 'like kind' to another. All real estate investments are considered of a 'like kind' and you may acquire an unimproved property for another improved real estate property. An example of investments not considered like kind would be a helicopter and a fixed wing plane.

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