Have you thought of using the 1031 exchange method of buying and selling real estate? For some real estate investors, it’s the preferred option when transferring investment real estate.  A 1031 exchange is a relatively easy transaction yet for some it’s a foreign concept solely due to the fact the investor has never participated in one. In its simplest form, a 1031 exchange allows a real estate investor to rollover the capital gains on one property into another. There are other advantages but tax deferment is one of the most prominent. But here are a few things you need to know about before you explore your first deal.

The properties (the one sold and the one purchased) must be “like-kind” which means the use of the properties must be similar and a primary residence can never be involved in a 1031 exchange.  The 1031 section of the IRS code also requires the newly acquired property must be identified no later than 45 days after the sale of the older property and the closing of the newly identified property must close within 180 days. A 1031 exchange is also unique in that the sellers will never touch any of the funds from the sale of the older property. Those proceeds are then held by an independent third party called an “intermediary.”

As it relates to ownership, a 1031 makes it a requirement the owner (taxpayer) be listed on both the old and new title. This applies regardless of the entity holding title such as an individual a trust or a partnership. New title must read exactly as the hold.

Don’t misunderstand, there are specific rules and regs set forth by the IRS that must be followed to the letter or the tax deferment will be disallowed, so make sure you work with a team with deep experience with a 1031. But once you’ve successfully closed your first, you’ll find out what other investors who use the 1031 are talking about.