1031 Exchanges – Boulder Loves Them.

1031 Exchanges happen a lot in Boulder, a town where around 50% of homes are in the rental pool. Why? One word: taxes. Section 1031 of the Internal Revenue Code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes (up to 15% Federal, 25% depreciation recapture and applicable state taxes) if they purchase a “like-kind” property following the rules and regulations of the Internal RevenueCode.

This allows investors to use all of the sale proceeds to leverage into more valuable real estate, increase cash flow, diversify into other properties, reduce management or consolidate holdings.

The rules are deceptively simple – basically our friends at the IRS allow you to get out of one piece of Like Kind real estate and into another to qualify for that deferral. ‘Like-kind’ property can include, but is not limited to, any of the following, provided it is held for investment:

Single Family Rental
Commercial Property
Raw Land

So if you want to get out of that Boulder rental and buy a storage unit business closer to home, that’s ok. Properties can be exchanged anywhere within the United States.

While the rules are straightforward, they must be followed To The Letter, with regard to timing especially.

The primary 1031 exchange rules and requirements include:

  • 1) same taxpayer: the taxpayer who sells is the taxpayer who buys,
  • 2) property identification within 45 calendar days post closing of the first property,
  • 3) purchase of the replacement property within 180 calendar days,
  • 4) trading up: the price of the replacement property is equal to or greater than the old or relinquished property,
  • 5) hold time supports the intent to hold for investment, and
  • 6) related party transaction regulations.

Contact me if you have a property that you’re considering a 1031 Exchange out of, or into.