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1031 Exchanges: A Powerful Tax Strategy for Investors and Business Owners 

Internal Revenue Code Section 1031 exchanges enable taxpayers to defer capital gains on the sale of business use or investment property provided another business use or investment property is acquired. A 1031 exchange allows investors to accomplish many investment goals, such as acquiring property with greater income potential, less management responsibilities, relocation of an investment, consolidation or diversification. 

Some of the requirements of a successful exchange are as follows:
  • A qualified intermediary (QI) is required to facilitate the exchange. Through an exchange agreement, The QI acquires, holds and conveys both properties, controls the sale proceeds and guides the exchanger through the exchange process. 
  • The exchanger must not have actual or constructive receipt of the sale proceeds, including deposit monies. 
  • Once the relinquished property is conveyed to a buyer, the exchanger has 45 days to identify replacement property and a total of 180 days to acquire it. 
  • To maximize the tax-deferral, replacement property of equal or greater value and equity must be acquired. In the event of a trade down in value or equity, the exchanger is taxed on the amount of the trade down. 
  • Title to the replacement property must be held in the same name as the relinquished property. 

In addition to the investment objectives already mentioned, an exchange is a great wealth accumulation vehicle and estate planning tool. The fact that one may complete exchange after exchange and continue to rollover the gain allows the gain to be deferred indefinitely. Upon the death of the exchanger, the heirs inherit the property with a stepped-up basis thus eliminating all deferred gain. Using 1031 exchanges, you have the ability to grow your real estate portfolio with pre-tax dollars.

Business owners have long utilized 1031 exchanges to help grow their business. They can also help a business relocate to a better location or a more efficient facility or expand into several locations as well as replace equipment and vehicles. Additionally, exchanges can provide an exit strategy for retiring business owners by exchanging business related real property for other income producing real estate or even a future vacation home or primary residence. 

In closing, 1031 exchange can assist investors and business owners accomplish many short and long-term objectives. Whenever selling real property held for business use or investment, be sure to discuss with your tax advisor how you might benefit from a 1031 tax-deferred exchange.

More information on 1031 CORP. can be found at or by calling 610.792.4880.


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TriCounty Area Chamber of Commerce

152 East High Street
Pottstown, PA 19464

Phone: 610.326.2900