PCT Exchange

1031 Exchange Services

What is a 1031 Exchange?

A 1031 exchange, also known as a like-kind exchange or tax deferred exchange, is where real property that is “held for productive use in a trade or business or investment” is sold and the proceeds from the sale are reinvested into a like-kind property intended for business or investment use, allowing the taxpayer, or seller, to defer the capital gains tax and depreciation recapture on the transaction.

The property sold as part of a 1031 exchange is the Relinquished Property. The property purchased is the Replacement Property. The real property in a 1031 exchange must be like-kind; most real estate is like-kind to all other real estate. For example, an office building could be exchanged for a rental duplex, a retail shopping center could be exchanged for farmland, etc.

During a 1031 exchange, neither the taxpayer, nor an agent of the taxpayer, can receive or control the funds from the sale of the property. If a taxpayer has direct or indirect access to the funds, a 1031 exchange is no longer valid. A qualified intermediary is used to hold the proceeds of the Relinquished Property sale until it is time to transfer those proceeds for the close of the Replacement property.

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Our 1031 Exchange Team
Trudy Swearingen

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Frequently Asked Questions

What is a qualified intermediary (qi)?

A Qualified Intermediary, or QI, is an unrelated third party used to facilitate the 1031 exchange transaction.

Can I do an exchange with more than one property?

Yes, you are allowed to exchange multiple properties. You can relinquish multiple properties for one replacement property, or vice-versa you can exchange one relinquished property for multiple replacement properties. The key is you want your replacement property(ies) to be equal or greater in value than your relinqished property(ies) to avoid taxable boot.

Does the name of the title for my replacement property matter?

Yes, with few exceptions, the title to the replacement property must be in the same name, or entity, as the relinquished property was held.

Can i refinance the relinquished property prior to the exchange or the replacement property after the exchange?

While there is nothing in the Regulations on this question, for technical reasons it is considered bad practice to refinance in anticipation of entering an exchange. Refinancing after an exchange to pull some equity out is considered proper.

Am I allowed to use exchange funds for improvements on replacement property?

Yes, as long as your exchange is structured properly. The best method to accomplish this is to have a Special Purpose Entity acquire title to the replacement property, the Special Purpose Entity will complete the improvements and then you, as the exchanger, will acquire the replacement property from the Special Purpose Entity through a built-to-suit or improvement exchange.

What is a reverse exchange?

AA reverse exchange is an exchange where the replacement property is purchased before the relinquished property is sold. Reverse Exchanges are more complex and your QI should be involved in all steps and planning to ensure it is completed in accordance with IRC § 1031.

Can some of the members of an llc do their own exchange or cash out at the time of the sale of the property?

The IRS Code does not allow members/partners to do his or her own exchange, only the entity can do so. Given enough preplanning, there is a technique referred to as a “drop & swap” whereby certain members/partners can drop their interest from the entity and enter the exchange individually and not at a member/partner.

In a reverse exchange, since the accommodator will be in title, does that mean it collects the rent from the property tenants?

No, typically, the Accommodator will Master Lease the property to the taxpayer enabling the taxpayer to manage the property, collect the rent and pay for expenses.

The 1031 Exchange Process

Below is a high level overview of the 1031 Exchange process.:

Helpful Links

Below are some helpful links and articles that might help answer any questions that you might have.

1031 Exchange Basics


1031 Exchange Process?


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