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Home » Exchange Basics

Exchange Basics

WHAT IS A QUALIFIED INTERMEDIARY?

In most circumstances, the use of a “Qualified Intermediary” is required to successfully complete an IRC Section 1031 tax deferred exchange. Treasury Regulation §1031.1031(k)-1(g)(4)(iii) refers to the entity that facilitates an exchange as a “Qualified Intermediary” (sometimes referred to as an accommodator or facilitator), which it defines as follows:

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§1031 CONTRACT LANGUAGE

Although many Exchangers include language in their Purchase and Sale Agreement establishing their intent to perform on exchange, it is not required by the Internal Revenue Code.

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Exchange Basics

Section 1031 of the Internal Revenue Code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes (15%+ applicable state taxes) if they purchase a like-kind property following the rules and regulations of the Internal Revenue Code.

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Exchange Terminology

To many real estate investors, the buzz words often used to describe different aspects of a tax deferred exchange can be confusing. For example, doesn’t something with two ‘downlegs’ and three ‘uplegs’ sound a lot more like a lopsided creature than an exchange transaction? Reflected below are brief descriptions of commonly used exchange terminology:

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Calculating Capital Gain

Use this table to compute Capital Gain

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Five Reasons to Exchange

Section 1031 tax deferred exchanges continue to increase in popularity as more investors nationwide discover the wide range of investment objectives that can be easily met through exchanging.

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Intro to Delayed Exchanges

Tax deferred exchanges have been a part of the tax code since 1921 and are one of the last significant tax advantages remaining for real estate investors.

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Opening an Exchange with API

Online – Go to the Asset Preservation, Inc. (API) website at www.apiexchange.com . Click on “Open New §1031 Exchange” along the top of the page.

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A Sale vs. An Exchange

The benefits of IRC Section 1031 exchanges can be tremendous! Investors are often able to defer thousands of dollars in capital gain taxes, both at federal and state levels.

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What Does Not Qualify

Taxpayers nationwide are able to acquire better performing properties or meet other investment objectives by understanding the great variety of properties that can be exchanged under Internal Revenue Code Section 1031. There are, however, some types of assets that do not qualify for non-recognition treatment, such as:

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