In a 1031 exchange, the beneficiary plays a crucial role in helping investors defer taxes on the sale of a property. A 1031 exchange, also known as a “like-kind exchange,” allows investors to use the proceeds from the sale of a property to purchase a similar property, and in doing so, defer paying taxes on the sale. But how does this work in practice?
The key player in this process is the beneficiary, who is the person or entity that holds the proceeds from the sale of the first property until they are used to purchase the replacement property. The beneficiary can be a qualified intermediary (QI), an attorney, a title company, or a escrow company, as long as they are not related to the investor.
- A 1031 exchange allows for tax deferment on property sales
- A beneficiary holds the proceeds from the sale of the first property
- The beneficiary can be a QI, attorney, title company, or escrow company
- The beneficiary must be unrelated to the investor
- The investor must identify a replacement property within 45 days and close on the purchase within 180 days
- By working with a reputable and experienced beneficiary, investors can defer taxes and make the most of their real estate investments.
John wants to sell his rental property and use the proceeds to purchase a new property. He chooses a reputable QI as his beneficiary and the QI holds the proceeds from the sale of John’s property. John then has 45 days to identify a replacement property and 180 days to close on the purchase. As long as he follows these guidelines, John can defer paying taxes on the sale of his rental property.
