Some people don't want to buy more real estate and are ready to move on to another asset class. A 1031 exchange (often referred to as a like-kind exchange or a 1031 tax deferred exchange), allows investors to sell a property held for trade, business,. Property Y: $300,000 / total replacement property value of $1,200,000 = 0. Sec. Hey All, I'm wondering if anyone knows if it's possible or if there is a way to perform a 1031 exchange for a property that has yet to be built? My Dad will be selling his properties up North and wants to. Making an Earnest Money DepositMAXIMIZING RETURN THROUGH A 1031 EXCHANGE: The ideal 1031 EXCHANGE client utilizes the tax free proceeds to leverage into multiple diversified properties, some with high income returns and others with growth potential. Question 8. Get Your Copy. If the names on the sale property and the exchange property are different, it won’t be accepted. 2. Investors should consult with. Replacement property must be identified within 45 days. Code § 1031 – “Exchange of Real Property Held for Productive Use or Investment. (“Exchangor" or "Exchanger") Individual or entity desiring an exchange. 1031 Exchange rules state that any difference between the amount of net sales proceeds received and total amount invested in. Rather than re-drafting the existing documents, in some cases, an addendum can be used. The 26 U. Whenever there was a doc missing or sign missing, they were quick to respond. If the investor does not move forward with an exchange, then the transfer of property is a sale subject to taxation. Everything you need to know about 1031 exchanges, including taxpayers' ability to sell investment property and exchange for replacement property tax deferred. The taxpayer took depreciation on Property X for the 10 years they owned the property. Failure to use a QI can result in missteps, causing the disqualification of the exchange and the. C. TAXES DUE (Effective Tax Rate)4. A 1031 exchange is a section of the United States tax code that allows taxpayers to defer taxes on selling real estate or other investments by reinvesting the proceeds in a like-kind asset. S. For example, if you sell a property for $200,000 but only re-invest $180,000, the $20K difference is known as boot. A taxable event triggers a tax liability calculation, which is the tax. 4167 = months Calculations: 65 days ÷ 30. 1031 Crowdfunding is a platform that allows investors to buy and own commercial properties that have been pre-vetted by real estate specialists and pre-qualified to meet the IRS standards for a 1031 exchange. With a 1031 Exchange, you can defer, reduce, and even eliminate paying taxes. The Bottom Line. • to a grantee other than a dealer, solely for the purpose of, and as a step in, the prompt sale to others. PPMO formula for Price Adjustment use NRB index of labor, material and equipment or fuel. 3) Still other times boot is avoidable. The. Exchange Rate Formula Explained. 1031 Exchange and New Construction/Not yet constructed? Fausto Carosella Poster Pro. To qualify for a 1031 exchange, the relinquished property and the replacement property must be “like-kind. Cash Boot Example #2. Lines 26-38 Not applicable to 1031 exchanges WorkSheet #10 for Buy-Down only. "A 1031 Exchange is a real estate transaction that allows real estate investors to defer capital gains taxes on the profitable sale of an investment property. If you do wind up taking control of the cash at any. Buying 1031 Exchange Replacement Property from a Related Person Mar 14, 2022. Jean Bolger. The basic steps involved in a 1031 exchange are: The property owner sells the existing property, known as the relinquished property, and identifies a. Deferred exchanges are more complex but allow flexibility. The realized gain is $300,000 - $172,117 - $24,854 = $101,029. 1031 exchange is purchased for $1,500,000. Reverse Exchange: A type of property exchange wherein the replacement property is acquired first, and then the current property is traded away. Since properly structured DSTs are. I'm having a hard time calculating the taxes owed. Free, simple 1031 Exchange Capital Gains Calculator to help you estimate and calculate the reinvestment requirements for a tax-free exchange. Task: Convert 65 days to months (show work) Formula: days ÷ 30. Boot results from a difference in value between the original property, known as the relinquished property, and the replacement property. Loan fees and loan. (TCO 11) If boot is received in a § 1031 like-kind exchange and gain is recognized, then which formula correctly calculates the basis for the like-kind property received? (Points : 2) Adjusted basis of like-kind property surrendered + gain recognized - fair market value of boot received Fair market value of like-kind property. The proceeds from the sale of an investment property are subject to a combination of state and federal capital gains taxes, Medicare tax, as well as the tax on the recapture of depreciation and other fees. For each additional property to be processed, it’s ~$350 more. For assets held less than a year, the gain is classified as short term and is. 1. Adjusted basis of like-kind property surrendered. Property Y: $300,000 / total replacement property value of $1,200,000 = 0. Both properties must be similar enough to qualify as "like-kind. I have a question. S. A 1031 Exchange Delaware Statutory Trust (DST) is a legal entity created for the purpose of holding title to investment real estate. A gain – sometimes referred to as a gain on sale – is the difference between the sales price of a property and its cost basis. Boot is a portion of the sales proceeds you receive from a 1031 exchange that isn’t re-invested in a replacement property. 1031(k)-1(g)(4)(ii) & (g)(6) provide that to have a valid exchange, the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of money or other property before the end of the exchange period must be expressly limited by agreement (a QI must effectively limit how and when the taxpayer can receive. The IRS considers a property swap an investment and an excellent way to improve the economy. The 1031 Exchange Calculator above provides a simple estimation of potential taxes related to the sale of investment property and net sales proceeds available for reinvestment. For a 1031 exchange, a written rental agreement solidifies that the relationship is between a landlord and a tenant, and familial relation doesn’t change that relationship. Benefits Of A 1031 Exchange. It sells for $650,000. 800-795-0769 -Ed Horan, CES® is Senior Exchange Consultant for Realty Exchange Corporation, Gainesville, VA, and author of How to Do a Like Kind Exchange Using a Qualified Intermediary. State capital gain (Realized gain – depreciation) * __% if applicable =. They can use the proceeds of the sale to invest in another multifamily asset of. This then leaves you with a recognized gain of $50,000. Reverse 1031 exchanges are more expensive than conventional 1031 exchanges, with reverse 1031 exchange base fees starting at $3,500. Realized gain, though, is the total value of your profit after you subtract any associated costs and the basis from the profit you made selling the asset. Beginning after 2017, nontaxable like-kind exchange treatment under section 1031 applies only to exchanges of real property held for use in a trade or business or for investment, other than real property. Net amount for Reinvestment. The main reason for conducting a 1031 exchange is to defer the payment of capital gains tax. Exchange Addendum To Contract To Buy And Sell Real Estate - Updated 04. A 1031 exchange, named after Section 1031 of the Internal Revenue Code, is a tax-deferral strategy that allows real estate investors to sell an investment property — not a primary residence. August 2, 2022. § 1031) states the recognition rules for realized gains (or losses) that arise as a result of an exchange of like-kind property held for productive use in trade or business or for investment. e. Propan-1-ol is the parent member of the class of propan-1-ols that is propane in which a hydrogen of one of the methyl groups is replaced by a hydroxy group. California Franchise Tax Board (FTB), reporting this NON-California property. To qualify as like kind, two assets must be of the same type (e. Get Your Copy. Code section 721 states that if you contribute property for an interest in a partnership, it is tax-free to the extent the only property received in. Nearly every commercial real estate transaction involves a loan. For more information, this article provides a more detailed explanation of Installment Sales in relation to a 1031 Exchange. It allows you to defer capital gains taxes when selling a property, as. 2. 21, 2021) Project Information Form Condominium Co-op, PUD, and other Homeowner Organizations (RR105C) Clean: SFC Meeting Minutes & Exhibits (Dec. A like-kind exchange under United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. In this case, you would have. The buyer has more flexibility with acquiring the property since they are. $300,000 acquisition cost less $125,000 deferred gains = new basis of $175,000. The “1031” in the 1031 Exchange name refers to the section of the Internal Revenue code that permits such. Section 1031 of the U. Benefits. As the national leader in 1031 Exchange services, IPX1031 has the financial assurances, security and expertise essentials to protect your funds and provide answers and guidance throughout the 1031 Exchange process. A 1031 exchange can help you defer capital gains taxes on investment property, but the rules are complicated. Take 400k to buy an investment property while taking advantage of the 250k tax exemption on capital gains for primary. A lot of people that have been holding single-family rental property (a small duplex or fourplex) may be inclined to buy a property as a replacement that eventually could be converted. 0. To calculate the QI’s average 1031 funds on deposit, divide the aggregate dollar amount of exchanges obtained by Question 2. Just. The formula set forth above is provided to help you determine your approximate gain and the sums that you may wish to defer through your exchange transaction. , your attorney, your real. Commercial property is depreciated over 39 years. A Guide to 1031 Exchanges. -Fair market value of boot received. Defer the tax. 3. Boot is a portion of the sales proceeds you receive from a 1031 exchange that isn’t re-invested in a replacement property. The three primary 1031 exchange rules to follow are: Replacement property should be of equal or greater value to the one being sold. A 1031 exchange allows an investor to sell a property and roll the proceeds from the sale into another “like-kind” asset of greater value. This formula yields a new basis of $2,175,000, which can be used to calculate the total long-term capital gains for the couple’s rental property. We don't think 1031 exchange investing should be so difficult. 11. Because of this change, the exchange of personal property for other personal property of like kind is now a taxable event. The “1031” refers to the section of the Internal Revenue Code that permits such exchanges. These advantages lead people to 1031 exchanges and are a powerful tool for real estate. For this reason, you cannot refinance a property in anticipation of an exchange. 1031 Exchanges Don’t Work to Downsize an Investment. They’re now selling it for $1 million. SEE OUR COMPANY FACT SHEET. A 1031 exchange, named after section 1031 of the U. 1031 exchange is purchased for $1,500,000. Your replacement has a $700,000 basis, also debt free. You’re required to pay capital gains tax on that money. Let’s start with the simplest word: you. Give our qualified intermediaries a call today to get your 1031 exchange off the ground. A enters $40,000 on line 20, the smaller of line 15 or line 19. How to Convert USD to INR. It allows savvy real estate investors to identify an unlimited number of replacement properties as long as their total cost doesn’t exceed double the value of the original property. A like-kind exchange consists of three main steps. S. Apportionment generally refers to the division of business income among states by the use of an apportionment formula. It is possible to have little or no equity or profit upon a sale and still owe capital gains taxes. Cover Strategy. The basis for the new asset must be equal to or greater than the relinquished asset for a successful 1031 exchange. com help customers to defer taxes and make better investment decisions. Step 2 Sell Existing Property. Their services can be as disparate as their cost. Section 1031: A section of the U. An exchange is often defined as a simple transfer of one thing for the other among two people. IRS Regulations changed effective January 1st, 2018. A 1031 exchange, named after Section 1031 of the U. A loan’s term is the amount of time that the borrower has to repay the principal balance. The IRS oversees these exchanges and stipulates tight deadlines for completion, along with other. The Exchange Must be for Like-Kind Property. In this case, you calculate your new basis by subtracting the capital gains deferred ($130,000) from the purchase price of the new property ($500,000), leaving you with a new cost basis of $370,000. This might be obvious, but it’s worth noting: in a 1031 exchange, both the property being sold/exchanged and the property being bought need to be purchased by the same party. Reverse 1031 exchange. Total new basis: $515,000 - $101,029 = $413,971. To qualify for a 1031 exchange, the following conditions you must meet: The. There are two parts then to the sale: the $450,000 exchanged. The definition of like kind in the realm of real estate is very broad. But, to take full advantage of this program, the IRS has established a. Advertisement. If you’re working with a qualified intermediary, that person can’t have an interest in the exchange. Yes, it’s possible to use a 1031 exchange to start a business. Rather than have the $10,000 profit taxed as a capital gain, the like-kind exchange allows the gain to be "passed on" to the new property used for business. 1031(k)-1 (a)). If you initiate a 1031 exchange, this value is deferred gain until the replacement property is sold. The general basis concept is that the new. The answer is: The same as those on the federal level. Commercial real estate is a “capital asset”, which means that the government levies a tax on the profits upon the sale of the asset. Section 1031 -- Exchange of Property Held for Productive Use or Investment (a) Non-recognition of gain or loss from exchanges solely in kind -- (1) In general --1031 exchanges allow taxpayers to defer capital gains. • when property is transferred by lease, unless the lease is for a term of years re newable forever. Lender’s title insurance. Regs. The new property that is received in the Sec. The Importance of Realized & Recognized Gain in a 1031 Exchange. The Qualified Intermediary (QI) is a third-party facilitator that through a series of assignments acts as the party to complete the exchange with the Exchanger. Each time, the adjusted basis of the property is carried over in the manner described above. In addition to the reinvestment requirement, the IRS outlines. This is perhaps the most common question we get regarding 1031 exchanges. Still $200,000 can be deferred, i. -Fair market value of boot received. To receive full tax deferral. Further. Internal Revenue Code (IRC) Section 1031 states that any exchange of properties of similar use can be exempt from most taxes. . 1031 EThe term “1031 exchange” refers to Section 1031 of the Internal Revenue Code and is also called a “like-kind” exchange of property. The total gains deferred of $500,000 must be split proportionately between the two replacement properties Y and Z to determine what amount is taken from each property’s acquisition cost to come up with the new cost basis for each property. 20. IPX1031 is the best choice for your 1031. A 1031 Exchange, sometimes called a “Like Kind Exchange,” is a tax deferral strategy used by experienced investors to defer tax liability/income tax on the profitable sale of an investment property. Calculating the basis for the new (replacement) property in a 1031 exchange is simpler--the purchase price plus the commission paid. 1. The IRS's strict timing rules can make a 1031 exchange for new construction a risky venture. - Calculation of Exchange Expenses - Information About Your Old Property. IPX1031® Essentials. When the replacement property has a lower value than the sale price of the relinquished property, that difference is. Add the Closing Costs and Capital Improvement Costs for Your Real Estate. ”. 1031 Exchange — Trade, Business or Investment Property. The basic rule of a 1031 exchange is that taxpayers can defer taxes on the sale of property by reinvesting those proceeds from the sale into a like-kind. These sections provide that taxpayers in a 1031 Exchange that sell California Property and purchase NON-California Replacement Property will be required to file an annual information return with the. The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc. Nevertheless, deferring taxes on as many assets as possible for as long as possible. Second, Section 1033 requires that the property lost to involuntary conversion be replaced with like-kind property. published June 21, 2023. A 1031 exchange installment sale is a real estate transaction structured as an exchange or sale in which you receive payments over time. See here for more details. , 15 the Tax Court referred to the regulation as providing a safe harbor. The strict rules surrounding 1031 exchanges require the new investment property to be of equal or greater value than the property being. Additionally, A determines that the total depreciation allowed or allowable on the section 1245 property is $50,000. Doing so is known as a like-kind exchange, which allows taxpayers to grow their investment on a tax-deferred basis. If each sale is conducted as a 1031 exchange, with all proceeds reinvested and all gains deferred, capital gains continue to be deferred indefinitely. To identify whether your property is eligible for a 1031 exchange, ensure it is “like-kind”. Deferred Gain. David Greene reveals the complete, realistic, and uncomplicated formula that all self-made multimillionaires implement to achieve wealth and financial freedom. Step Number Three. a Two of these statements are correct. ” All deadlines below start from the closing date of the relinquished property (the contract date does. 04/25/23. 180-Day Closing Period. (1) The exchange group has an exchange group surplus of $1000 because the. 5 days Result: 180 hours is equal to 7. An investor that holds property longer than 1 year will be taxed at the favorable capital gains tax rate. A 1031 exchange is one of the most powerful remaining tax deferral strategies. The taxpayer took depreciation on Property X for the 10 years they owned the property. Internal Revenue Code, investors can defer capital gains taxes by trading one investment property for another of similar kind. The seller can realize appreciation on their capital gains tax-deferred basis. Requires only 10 inputs into a simple Excel spreadsheet. dollars, the country’s official currency. Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031. Here’s the formula in code format: 1031 Exchange Value = Property Value - Exchange. The only requirement is that a person must buy “like-kind” property of equal or greater value with the sale’s profits. QUALIFYING PROPERTIES: A key rule about 1031 exchanges is that the transaction must take the form of an “exchange” with “like-kind” properties, rather than just a sale or one property. Example: Calculating Gain and Basis for an Exchange Like-Kind Property. Many factors are involved in calculating taxes, including factors. Going from a residential to a commercial property is not particularly noteworthy from the perspective of a 1031 exchange. Doing so is known as a like-kind exchange, which allows taxpayers to grow their investment on a tax-deferred basis. Do’s. In other words, an investor can exchange one investment. At the heart of the 1031 exchange is the 1031 exchange timeline, which dictates how a 1031 exchange is performed. Jeff’s company is a Qualified Intermediary for 1031 exchanges of real estate. The exchange of property for the same kind of property may qualify as a nontaxable exchange under section 1031 of the Internal Revenue Code. David Greene reveals the complete, realistic, and uncomplicated formula that all self-made multimillionaires implement to achieve wealth and financial freedom. A related party 1031 transaction is a 1031 exchange completed between two related persons or entities as defined by the tax code. Deferred Income Tax Liability. In the first scenario described above, the married couple is able to take their $1. Using Section 121 and Section 1031 together. In this example, the amount is based on $400,000 of depreciation taken. In a 1031 exchange, the taxpayer who owns the relinquished property must be the same taxpayer who takes ownership of the replacement property. 040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or hold all client funds in a qualified escrow account or qualified trust. Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their relinquished property to formally identify a replacement property or properties. If the basis is $2,500, the recognized gain is $7,500. Fees increase rapidly in proportion to the size and complexity of the transaction. 7427. Therefore, there’s no financial gain to tax. IPX1031 focuses solely on Tax Deferred Exchanges. They simply become “partial” 1031 Exchanges where the taxpayer has a partially tax deferred transaction rather than deferring all their taxes. Generally speaking, an Institutional Qualified Intermediary charges ~$1,500 in administrative fees for a 1031 exchange that involves one “relinquished property (the old one)” and one “replacement property (the new one). The words “like-kind” refer to the. S. 0. In a like-kind exchange, a seller of real property can defer recognizing gain on the sale, thereby deferring payment of capital. 5MM in proceeds and reinvest $1MM into the new property. The publisher is notLet’s break down the key 1031 exchange rules in layman’s terms: 45-Day Identification Period. Tax straddling just provides an additional option to taxpayers selling investment property at the end of the year. About The 1031 Exchange Calculator. This is. Calculating the basis for the new (replacement) property in a 1031 exchange is simpler--the purchase price plus the commission paid. Treas. S. A 1031 exchange, named after section 1031 of the U. All three steps must be completed for the tax return to contain the correct information. Section 1031. Most of our customers are in the process of selling or have sold investment real estate and they are looking for properties to strategically reinvest their capital into that will generate income while deferring their capital gains taxes under IRC 1031 which is called 1031. Exchanges may be fully tax-deferred, or partially deferred and partially taxable, depending on. 3. And voila! You have the 1031 exchange value. In this article, we will delve into the step-by-step process. In theory, an investor could continue deferring capital. But, to take full advantage of this program, the IRS has established a. (Copper has theIn the first two years, your personal usage cannot exceed 14 days, and you’ll need to rent it for 10 times the number of personal use nights: at least 14 days per year. However, she can only locate new property with a sales price of $800,000. the $300,000 relinquished property gain minus $100,000 taxable boot. These calculations are estimates for the purpose of demonstration. My parents have a trust setup with both of them as managing members. To pay no tax when executing a 1031 Exchange, you must purchase at least as much as you sell (Net Sale) AND you must use all of the cash received (Net Cash Received). e1031xchange did a fantastic job from start to finish. The 1031 Exchange Worksheet is often used in financial and accounting applications, because it allows users to import or export data from one format to. “Cash boot” is the receipt of cash and “mortgage boot” (also referred to as debt relief) is a. 1031 Exchange Addendum (New Form) Annotated: Clean: Comments: Minutes & Exhibits (Oct. From the table above, it is obvious that we cannot distinguish between copper and zinc, or between chromium and nickel, on the basis of specific heat alone. Internal Revenue Code, is a way to postpone capital gains tax on the sale of a business or investment property by using the proceeds to. 5. Applying section 1. Say you paid $20,000 for a piece of business or investment real estate and sold it for $30,000 ($30,000 - $20,000 = $10,000 capital gain). The Taxpayer that Sold and Acquired the Exchange Property Must be the Same. The property must be rented out to another person for more than 14 years of the 12-month period after the exchange. Compounding Your Investment with a 1031 Exchange A 1031 exchange is a phenomenal tool for commercial real estate investors. Assume you have a prize steer that you sell in a 1031 Exchange for $20,000 and you buy a new steer for $20,000. Austin, TX 78701. you may be able to achieve similar results with code section 721. Using a 1031 tax-deferred exchange requires advance planning. The formula below shows the calculation of the profit from a 1031 exchange: Sale Price - Debt - Cost of Sale = Exchange Proceeds Debt - new debt = boot Exchange proceeds - down payment = boot Boot + boot = total boot If exchange proceeds are equal to or less than the down pay A 1031 exchange is a real estate investing tool that allows investors to exchange an investment property for another property of equal or higher value and defer paying capital gains tax on the profit they make from the sale. The new property that is received in the Sec. Original purchase price ($): Capital improvements ($): Accumulated depreciation ($): Sales price ($): Selling expenses ($): Rates & Loan Balance Input Federal capital gains rate (%): State capital gains rate. ) of your intent so they can properly assist you in conducting the transaction. A loan’s amortization is the amount of time over which the loan’s payment is. Key Takeaways. Don’t Get the Boot! Investors need to understand what is cash boot in a 1031 Exchange so they can avoid uncessary tax consequences. "washington state law, rcw 19. ChEBI. However, a 1031 Exchange can be a complicated. You choose to sell your current property with a $150,000 mortgage on it. Buyer agrees to an assignment of this contract to. Material index is fluctuating and has. 1031 Exchange Calculator. This calculator will help you to determine how much tax deferment you can realize by performing a 1031 tax exchange instead of a taxable sale. Needs to be the same taxpayer. A 1031 Exchange in commercial real estate is a transaction that allows a commercial property seller to defer paying taxes on the sale of the property if they use the funds to buy another, similar property within a specific period of time. With the passage of the Tax Cuts & Jobs Act, only real property can now be exchanged for other like-kind real property. While short-term capital gains – realized in. Since you are likely conducting a 1031 exchange to defer payment of your capital gains tax, boot will counteract this benefit. For starters, we’ll add detail to our earlier reference to the. Capital gains tax is owed when you sell a non-inventory asset at a higher price than you paid resulting in a realized profit. -The giving of boot in a § 1031 likekind exchange can result in the recognition of gain. 1031 Exchange rules state that any difference between the amount of net sales proceeds received and total. 3. Both the buyer and seller benefit from this arrangement. (B) Under paragraph (b)(2)(ii) of this section, all liabilities assumed by U ($7000) are excess liabilities assumed. Treas. The 1031 exchange rules and regulations are applied separately and individually to each 1031 exchange group to determine the amount of any excess gain to be recognized, and the basis of the like-kind replacement properties received. =Basis of like-kind property received. Replacement property must be identified within 45 days. $300,000 acquisition cost less $125,000 deferred gains = new basis of $175,000. guest speaker, Laura McKee, who will expertly guide us through the transformative topic of "Building Wealth through 1031 Exchange. Section 1031 has been around for more than a century, but Congress is giving it another look. There was $700,000 of depreciation leftover at the time of the exchange (aka “carryover basis”). 9, 2021) Blank Addendum: Clean: Early Occupancy Contract (RR202) Clean: Date Meeting. , your attorney, your real estate agent, etc. Internal Revenue Code, is a way to postpone capital gains tax on the. The total gains deferred of $500,000 must be split proportionately between the two replacement properties Y and Z to determine what amount is taken from each property’s acquisition cost to come up with the new cost basis for each property. What are the three requirements that must be satisfied for a transaction to qualify for nontaxable exchange treatment under § 1031? Classify the items below as either "Yes, a requirement" or "No, not a requirement". The sales price of the current property: $750,000 less adjusted basis, sales, and closing feesQualifying property must be held for use in a trade or business or for investment. If you are risk-averse or in no hurry, the wait may make sense. As a result of the severe winter storms, flooding and mud slides that began in California on January 8, 2023, on January 10, 2023, the IRS issued an initial extension of the 45- and 180-day deadlines for IRC §1031 exchange transactions (outlined in this alert). A 1031 Exchange is a real estate transaction that allows real estate investors to defer capital gains taxes on the profitable sale of an investment property. Capital Gains Calculator. Otherwise, the sales gain is taxed at the ordinary income rate. Do know that 1031 exchanges aren’t just for investment real estate. . This property exchange takes its name from Section 1031 of the Internal Revenue Code (IRC). Yes, a Qualified Intermediary (QI) is typically used to facilitate a 1031 Exchange . 2005 - Optional 1031 Contract addendum approved by the Colorado Real Estate Commission. If you're like a lot of real estate investors you are real estate rich and cash poor. To this day, many tax experts refer to Section 1031 transactions as “Starker exchanges. In response to this change, questions arose on what was defined as "real.