Robert A Stallard
RE/MAX Advantage
Robert Stallard, Patricia Marcotte, and Patrick Maguire

Cell Mail: 978 808 5938
Office: 978-927-9100


Bob Stallard is transitioning to the Northshorist Group
Robert A. Stallard

RE/MAX Advantage Real Estate
100 Cummings Center Suite 104F,
Beverly, MA 01915
Cell 978 808 5938
Office Fax: 978 927 2856
Office 978 927 9100

For over 25 years my strategy is to listen carefully to your needs and concerns. With my experience in changing markets, my advanced technology, and my commitment to placing my clients' goals first, you too may maximize profit, and minimize problems.

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1031 Tax Deferred Exchange

Major Guidelines for Section 1031Exchanges


In most instances, the sale of real estate, other than one?s primary personal residence, gives rise to a federal and a state capital gains tax liability. This is true for land and all categories of rental property, including single-family homes, condos, and multi-unit residences such as two or three family homes. When the property owner lives in one unit of a multi-unit building such as a three family home, the sale of that portion of the property representing the rental units is generally subject to a capital gains tax. This tax can be substantial and is generally payable with the property owner?s federal and state tax filings for the year in which the property was sold.

Section 1031 of the Internal Revenue Code enables property owners who are selling ?business or investment property?, such as rental residential property, to indefinitely defer this capital gains tax. To consider a Section 1031 Exchange, the property owner must initially meet these two guidelines:

1. The property that the owner is selling must qualify as ?business or investment property.? This includes most residential rental property, land and commercial / industrial buildings; and

2. The property owner must reinvest the net sales proceeds in qualifying ?Replacement Property?, such as another residential rental property, land or a commercial / industrial property.

Property owners who meet these two broad qualifications should look into the benefits of a Section 1031 Exchange when arranging for the sale and purchase of their properties.

What is a Section 1031 Exchange

A Section 1031 Exchange, often referred to as a ?like-kind? exchange, rarely involves two people trading properties. It almost always involves a property owner:

-Working with his or her broker who will assist in selling one property such as land or a rental property, then purchasing another 'business or investment' property; and

-Working with a Qualified Intermediary such as Atlantic Exchange Company who will provide the documents, escrow services and guidance necessary for the property owner?s sale and purchase to qualify as an ?exchange? for tax purposes.

Please Note:

-Although Exchanges most often consist of the sale of one property and the purchase of another, it is possible for exchanges to include multiple properties. For example, a property owner may sell one property the acquire two, or sell three properties and acquire one while completing a Section 1031 Exchange.

-Different types of property can be exchanged, for example: a property owner can sell land and buy a residential rental property, or sell residential and buy a commercial property, or sell commercial and buy an industrial or residential rental property.

-The sold, or ?Relinquished? property and the purchased, or ?Replacement? property, need not be of the same value; however the purchase of a Replacement Property for an amount less than the sale price of the Relinquished Property may give rise to a limited capital gains tax.

Types of Exchanges:

Delayed (or Forward) Exchange: This occurs when the ?Relinquished Property? is first sold, then the ?Replacement Property? is acquired at a later date. This is the most common and generally the simplest and least expensive type of exchange. Please see the important time constraints noted below.

Reverse Exchange: These occur when the property owner desires to, or must, acquire the Replacement Property before selling the Relinquished Property. Reverse Exchanges are generally more complex and involve a larger role for the Qualified Intermediary than a Delayed Exchange.

Construction or ?Build-to-Suit? Exchange: This type of exchange involves Replacement Property that must be constructed or undergo extensive renovations before it can be acquired by the property owner to complete his or her exchange. These exchanges also involve a fairly substantial role for the Qualified Intermediary.

Delayed Exchange Guidelines:

1. Both the Relinquished (sold) Property and the Replacement (purchased) Property must be 'used in a trade or business or held for investment.? Residential rental property, including single and multi-family homes, condos and apartment buildings all will generally qualify.

2. Please note two very important deadlines:

a. Unless the property owner has acquired his or her Replacement Property within 45 days of the sale of the Relinquished Property, the owner must identify potential replacement properties, in writing, to the Qualified Intermediary by the 45th day following the sale of the original property; and

b. The Replacement Property must be purchased within 180 days of the closing of the Relinquished Property.

3. When identifying potential Replacement Property to the Qualified Intermediary in a Section 1031 Exchange, the property owner has these three options:

a. The Three Property Rule (most common in the Northeast): Any three properties regardless of their market value; or
b. The 200% Rule: Any number of properties provided that their aggregate value does not exceed 200% of the sale price of the Relinquished Property; or
c. The 95% Rule (not common): The value of the Replacement Properties acquired must represent at least 95% of the value of the Replacement Properties identified.

4. The property owner is not required to purchase all of the designated Replacement Properties, but must ultimately acquire at least one of them to complete the Exchange.

5. The property owner cannot take back the sales proceeds from the sale of the Relinquished Property. The Intermediary will hold the net sale proceeds in escrow.

6. The Exchange Documents provided by the Intermediary must be signed in advance of both the sale and the purchase of any properties involved in the Exchange.


If you are selling a ?business or investment property? such as rental residential property, and reinvesting the sales proceeds in other business or investment (rental) property, then working with your broker and a Qualified Intermediary such as Atlantic Exchange Company to structure your purchase and sale as a Section 1031 Exchange can in many cases save perhaps thousands of dollars in capital gains taxes. Like other aspects of the IRS Code, exchanges can become fairly complex so we therefore encourage property owners who are considering a Section 1031 exchange to seek professional advice.

This information is intended as a general summary of Section 1031 Exchanges only and does purport to include all of the guidelines necessary to successfully complete an exchange.