Definition of ‘Section 1031’
A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property – the payment of tax is deferred until property is sold with no re-investment.
According to Investopedia – The idea behind ‘Section 1031’ is that when an individual or a business sells a property to buy another, no economic gain has been achieved. There has simply been a transfer from one property to another. For example, if a real estate investor sells an apartment building to buy another one, he or she will not be charged tax on any gains he or she made on the original apartment building. When the investor sells the original apartment building and purchases a new one, the value used from the original to buy the new one has not changed – the only thing that has changed is where the value is being held.
Rohan Realty Associates works with a number of good Qualified 1031 Exchange intermediaries and can help facilitate a positive relationship with one for you. A Qualified Intermediary (QI) must be used to facilitate the 1031 Exchange Transaction and as a matter of fact, by definition, a 1031 Qualified Intermediary (QI) is an independent and professional facilitator who receives the funds. He handles the funds from the original sale and holds the funds until they are needed to purchase the new exchange (replacement) property. The Qualified Intermediary (QI) then directly delivers the money to the closing agent who then, in turn, delivers the deed directly to the real estate investor himself