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1031 Exchanges

Thompson & Knight’s tax and real estate attorneys have significant experience handling “like-kind exchange” or “1031 exchange” transactions. A tax-free exchange, under Section 1031 of the Internal Revenue Code, allows a property owner to transition from one parcel of real estate to another parcel of equal or greater value and to defer income taxes if certain requirements are met. Exchanges are not necessarily complicated, but certain rules must be followed to qualify for tax deferral.

Overview

Thompson & Knight’s tax and real estate attorneys have significant experience handling “like-kind exchange” or “1031 exchange” transactions. A tax-free exchange, under Section 1031 of the Internal Revenue Code, allows a property owner to transition from one parcel of real estate to another parcel of equal or greater value and to defer income taxes if certain requirements are met. Exchanges are not necessarily complicated, but certain rules must be followed to qualify for tax deferral.

Originally, Section 1031 exchanges required the actual transfer of one piece of property for another. Regulations now allow for a “deferred” exchange, which is the most popular means of making such an exchange. A deferred exchange allows a property owner to sell a parcel of real estate and then, within certain time constraints, find another parcel of real estate and use the proceeds from the sale of the first parcel to buy the second parcel. The funds from the first sale cannot be received by the owner, but must be deposited with a “qualified intermediary” until replacement property can be found.

For the exchange to qualify for tax deferral, the replacement property must be “like kind” property, but it doesn’t have to be identical. For example, farmland can be exchanged for residential real estate, and residential real estate can be exchanged for commercial real estate. Further, you can sell property and build a new property to replace it if the building can be completed within 180 days after closing the original sale.

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