HOW TO BENEFIT FROM A 1031 EXCHANGE 

ADHERE TO THE TIMELINES.

• 45-Day Timeline: Within 45 days of the sale of your old property, you identify one or more replacement properties you'd like to purchase. You'd need to submit your list to the qualified intermediary so they have your list on record.
• 180-Day Timeline: Within 180 days of the sale of your old property, you must close on the purchase of one or more of the properties you've identified on your list. At that time, the qualified intermediary uses the funds you have in escrow to purchase the new property on your behalf.

HERE'S AN EXAMPLE:

Assume that Lisa has a $500,000 long-term capital gain on her investment property. If she sells the property outright, she'd probably have to pay $100,000 in capital gains tax (20%), plus an additional $19,000 as a 3.8% net investment income tax. On the other hand, Lisa may be able to save $119,000 in taxes if she uses a 1031 exchange and rolls over all her sales proceeds into another investment property. There's no limit on the number of times Lisa can use a 1031 exchange. She could use this strategy to continuously roll over her profits from the sale of investment real estate without ever having to pay capital gains tax. Then, when her heirs inherit her properties, they'd receive what's known as a step-up in basis. This means that if they sell the property at that time, they won't have to pay capital gains tax either!