What Is a 1031 Exchange?

1031 Exchange Deadlines

Strict IRS 1031 exchange time limits apply:

• 45-Day Identification Period

  – Investors in Prince of Wales-Hyder Census Area County, AK must identify potential replacement properties within 45 days of selling the original property.

• 180-Day Purchase Deadline

  – The new property must be purchased within 180 days of the sale.

Types of 1031 Exchanges

Investors can choose from different 1031 exchange structures based on their needs:

• Delayed 1031 Exchange

  – The most common type, where the new property in Prince of Wales-Hyder Census Area County, AK is purchased after selling the original one.

• Simultaneous 1031 Exchange

  – The old and new properties in Prince of Wales-Hyder Census Area County, AK are exchanged at the same time.

• Reverse 1031 Exchange

  – The replacement property is purchased before selling the original one.

• 1031 Improvement Exchange

  – Investors in Prince of Wales-Hyder Census Area County, AK use funds from the exchange to improve the replacement property.

Risks & Limitations of a 1031 Exchange

While a 1031 exchange provides tax benefits, there are risks to consider:

• Depreciation Recapture

  – If the investor later sells without another exchange, they may owe taxes on prior depreciation.

• Boot (Taxable Gains)

  – If cash or non-like-kind property is received in the exchange, it may be taxable.

• Strict IRS Rules

  – Failure to follow deadlines or requirements can disqualify the exchange.

Example of a 1031 Exchange

An investor sells a rental property for $500,000, with a capital gain of $200,000. Instead of paying taxes on the gain, they reinvest all proceeds into a new $600,000 rental property. This defers capital gains taxes, allowing them to grow their real estate portfolio tax-efficiently.