A 1031 exchange lets an investor sell one investment property and buy another while deferring federal capital gains tax. The rules are strict, and the deadlines do not move. Here is how it works for Hudson Valley investors.
The basics
- Like-kind real property. Since 2018, only real property held for investment or business use qualifies. A Kingston six-unit can be exchanged for a Dutchess County retail building or a parcel of land.
- 45 days to identify. From the day the sale closes, you have 45 days to identify replacement property in writing.
- 180 days to close. You must close on the replacement within 180 days of the sale, or by your tax return due date if that comes first.
- A qualified intermediary holds the money. If you take possession of the sale proceeds, the exchange fails. Engage the intermediary before you close the sale.
- Cash or debt left over is taxable. To defer all of the gain, buy property of equal or greater value and reinvest all of the proceeds.
Source: IRS, Like-Kind Exchanges: Real Estate Tax Tips.
The real problem is the 45 days
Most failed exchanges fail at identification. Good income property in Ulster and Dutchess does not sit on the market, and 45 days goes quickly. The answer is to start looking before you list. Join our private client registry and we will match you with properties, on and off market, while your sale is still being prepared.
General information, not tax or legal advice. Work with a CPA, tax attorney and qualified intermediary on every exchange.