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Tax Deferred Exchanges

Tax deferred exchanging is an investment strategy that anyone who owns investment real estate should considers; therefore, real estate advisors, which includes but is not limited to lawyers, accountants, real estate agents, financial planners, enrolled agents, tax advisors, escrow/closing agents, and lenders should be familiar with Section 1031, tax deferred exchanges.

WHAT IS A TAX DEFERRED EXCHANGE?

Tax deferred exchanges are authorized by Section 1031 of the Internal Revenue Code, and is a method by which a property owner trades one piece of property for another, tax-free; IRS regulations make exchanging easy, inexpensive, and secure. During a regular real estate transaction, the property owner is taxed on any gained revenue from the sale; however, a 1031 exchange defers or "delays" the tax to another pointed time or until the property is resold. Because the transaction is not taxed, this exchange is often referred to as a tax-free exchange. Section 1031 requirements as well as other sections must be carefully met in order for the tax to be deferred.

WHAT IS THE PROPER PROCEDURE FOR A SECTION 1031 TAX DEFERRED EXCHANGE?

The procedure for a 1031 exchange is as follows: a property owner merely exchanges one piece of property for another. It is imperative that the transaction is structured in such a way that an "exchange" takes place rather than the sale of one piece of property and the purchase of another.

Today, a qualified intermediary, a fourth-party who ensures that the exchange is properly structured, handles the 1031 exchange agreement. Intermediary agents supervise sales and reinvestments in replacement properties that are converted into exchange agreements.

Alabama Title Company does not advise property owners regarding specific tax consequences. Our office advises that anyone contemplating a 1031 exchange should seek the advice of an accountant and/or attorney

For help concerning the Section 1031 exchange, please contact our office at (205) 322-1821

Serving Jefferson, Shelby, St. Clair, and Blount Counties since 1946.
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