Watching a property’s value rise on paper is gratifying—until the capital gains tax bill arrives and dampens the celebration. When a property is sold for a profit, capital gains tax applies to that gain, potentially reducing the funds available for reinvestment. Fortunately, the U.S. tax code offers a powerful tool enabling investors to defer capital gains tax, keep their money in the market, and acquire high-quality properties.
What is a 1031 Exchange?
Under Section 1031 of the IRS code, investors can defer capital gains and related federal income taxes by reinvesting proceeds from a real estate sale into a qualifying “like-kind” replacement property.
What are the requirements of a 1031 Exchange?
To qualify for a 1031 exchange, investors must satisfy several specific requirements set forth by the IRS:
- The purchase price of the replacement property must be equal to or greater than the sales price of the exchanged property.
- The entire amount of equity received from the sale of the exchanged property must be utilized in the purchase of the replacement property.
- Both the exchanged and replacement properties must be located within the United States.
- Both properties must be held for investment purposes.
- The sale must follow a specific timeline.
Additionally, proceeds from the sale of the exchanged property must be held by a qualified intermediary (QI), so the seller cannot touch or control the funds. QI documents must be signed prior to the closing of the sale of the exchanged property.
The 1031 Timeline
In addition to qualifying parameters, there are specified time periods that must be followed. The identification of the replacement property must be completed in writing within 45 days of the closing of the sale of the exchanged property. Additionally, the purchase of the replacement property must be completed within 180 days of the closing of the sale of the exchanged property.
Metonic’s 1031 expertise
Metonic Real Estate Solutions has a proven track record of supporting investors through the 1031 process. Our experience includes sourcing, acquiring, and managing replacement properties—whether solely on behalf of an investor, in partnership, or by offering access to existing Metonic assets.
Metonic facilitates 1031 transactions for investors with $2 million or more in equity to exchange. Our team has experience across a wide range of product types and markets from a smaller value-add apartment complex in Omaha, NE, to a sprawling class-A build-to-rent community in San Marcos, TX.
Throughout the process, Metonic collaborates with both the investor and the qualified intermediary to ensure full compliance with all 1031 timing requirements and to facilitate a smooth, efficient transaction. Following the closing, Metonic provides ongoing support by managing the operations of the replacement property.
For more information, please do not hesitate to contact Josh White or Rachel McCown.