A 1031 exchange, named after Section 1031 of the IRS tax code, is an investment property tax strategy which allows real estate investors to defer capital gains taxes when they sell a property and reinvest the proceeds into a new investment property of equal or greater value. This can help you preserve more of your capital for reinvestment and grow your real estate portfolio.

In a 1031 exchange, both the property you sell and the property you acquire must be held for investment or business purposes. The term “like-kind” is quite broad and includes properties like commercial buildings, rental properties, and land. Personal-use properties, such as your primary residence, do not qualify unless you have rented part of it or have a home office. Please discuss your situation with us to go over this.

When you sell an investment property, the IRS typically requires you to pay taxes on the capital gains. However, by using a 1031 exchange to reinvest the proceeds into a new qualifying property, you can defer those taxes indefinitely, provided the exchange follows all IRS rules.

A 1031 exchange has strict deadlines:

• You have 45 days from the sale of your property to identify potential replacement properties.
• You have 180 days from the sale of your property to close on the new property.

It’s crucial to meet these deadlines to qualify for tax deferral.

Yes! As long as the properties are used for investment purposes, you can exchange different types of properties. For example, you can exchange a commercial building for land or a residential rental property for an office building.

A qualified intermediary (QI) is a neutral third party that facilitates the 1031 exchange by holding the sale proceeds during the exchange process. You are not allowed to take control of the funds between transactions, so working with a qualified intermedia for 1031 is essential to ensure compliance with IRS regulations.

• Standard Exchange: The most common type, where the sale of the old property occurs first before purchasing the replacement property.
• Reverse Exchange: You buy the replacement property before selling your current one.
• Improvement Exchange: Funds are used to make improvements on the replacement property during the exchange.

Generally, personal property like cars or artwork doesn’t qualify for a 1031 exchange. However, under certain conditions, you might be able to use a 1031 exchange for vacation homes if they’ve been rented part of the time and treated as investment properties, please consult with us on your specific scenario .

Yes, a partial 1031 exchange allows you to reinvest only a portion of the proceeds from the sale of your property. However, any funds not reinvested (referred to as “boot”) will be subject to capital gains taxes.

You must identify potential replacement properties within 45 days of selling your original property. There are three identification rules:

• Three Property Rule: Identify up to three potential properties regardless of value.
• 200% Rule: Identify any number of properties as long as their combined value doesn’t exceed 200% of the sold property’s value.
• 95% Rule: You must acquire at least 95% of the total value of the identified properties.

While 1031 exchanges offer significant tax advantages, they also have risks. Failing to meet IRS deadlines, improperly identifying replacement properties, or making errors in paperwork can result in disqualification and taxes owed. It’s essential to work with experienced professionals to avoid these pitfalls.

At Pinnacle 1031, we specialize in simplifying the 1031 exchange process for investors. With years of experience, expert knowledge, and a client-centered approach, we ensure your exchange is compliant, efficient, and tailored to your unique investment goals.

The first step is to consult with us. Contact Pinnacle 1031 to discuss your investment goals, the properties you’re selling and acquiring, and we’ll guide you through the process. You’ll need to work with a qualified intermediary (like us) to ensure compliance with IRS rules.

At Pinnacle 1031, we understand that every real estate transaction is unique, and we work closely with you to tailor a strategy that meets your goals. Here’s why investors trust us:

While located in San Diego, Pinnacle 1031 Exchange can service exchanges nationwide.