Section 1031 of the Internal Revenue Code enables investors and business owners to take advantage of a tremendous vehicle to build wealth and defer tax obligations. By completing a 1031 exchange, the taxpayer can sell investment property, and use all of the equity from the sale to acquire other investment property, without having to immediately pay taxes on the capital gains from the property sold. In short, a 1031 exchange helps you accomplish what most investors desire – buy new property, build wealth, increase equity, and defer paying capital gains taxes.
The IRS requires that any taxpayer taking advantage of Section 1031 retain the services of an independent Qualified Intermediary (like a trustee) to facilitate the exchange. A Qualified Intermediary, like Brazos 1031 Exchange Company, must be hired before the sale of the currently-owned investment property. The Qualified Intermediary will make sure that the necessary documents are prepared and signed to qualify your transaction for tax deferral. They will also make sure that the IRS-mandated process is followed. Finally, the Qualified Intermediary will hold your sales proceeds between real estate closings in accordance with the IRS rules.
By utilizing the services of a Qualified Intermediary and by strictly following the IRS’s rules and process, you will be able to reinvest all of your sales proceeds as equity in a new, replacement investment property. Any capital gains taxes that would have been due, will instead be deferred. Building wealth in a tax efficient manner is what a 1031 exchange accomplishes.