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1031 Exchange FAQs


What is a 1031 Exchange?
Usually real estate property owners are taxed on any financial gain earned from the sale of property. A 1031 Exchange is simply a way of deferring tax on the financial gain.

The name 1031 Exchange is in reference to the Internal Revenue Code. Section 1031 of the IRS Code states that no gain or loss shall be recognized on the exchange of a property held for productive use in a trade, business or investment. Thus, a 1031 Exchange is the means by which property owners' trade properties to defer the payment of federal and state taxes usually assessed on the financial gain.

Why should I consider a 1031 Exchange?
Here are a few of many benefits of a 1031 Exchange:
  • The 1031 Exchange allows you to expand your investment portfolio by buying and selling property while deferring taxes on any financial gain.
  • Any financial gain from depreciation recapture is postponed and not taxed until a later date.
  • A 1031 Exchange is essentially an interest free loan from the federal government in the amount that you would have ordinarily paid in taxes.
What type of exchange should I use?
Contact your tax advisor or legal advisor to discuss your situation. Each exchange is different and it is important to find the exchange that is most beneficial to you!

How can I be sure to avoid all taxable gain on my exchange?
  • Make sure you purchase a replacement property of equal or greater value.
  • Make sure the equity of the replacement property is of equal or greater value to the initial property.
  • Make sure the debt on the replacement property is of equal or greater value to the debt on the initial property.
  • Ensure all of the net proceeds from the initial property are used to acquire the replacement property.
  • Utilize a Qualified Intermediary such as American Real Estate Exchange Services to ensure that your transaction meets the IRS Regulations.
When can I access my money in the secure exchange account?
If you want to avoid tax on capital gains then the taxpayer cannot receive any money until the exchange is complete and the exchange monies must be placed in a secure escrow account of a Qualified Intermediary during the exchange.
American Real Estate Exchange Services does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. You should consult your tax and/or legal advisors before undertaking a 1031 exchange.