The definition of a 1031 exchange is that it allows a seller of a piece of property (relinquished asset) to purchase another property (replacement asset) of equal or greater value and defer capital gains taxes by performing a like kind exchange. In order to get a complete deferral on all capital gains taxes, 100% of the profit from the property must be reinvested into the new property in an allotted timeframe. The IRS defines nearly all residential real estate as being like kind except for foreign (non U.S. territory) real estate. Any funds not reinvested will be taxable.
5 most common 1031 exchanges are:
- Straight/Simultaneous 1031 Exchange
- Delayed 1031 Exchange
- Reverse 1031 Exchange
- Multiparty Exchange
- Improvement 1031 Exchange
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