1031 Transactions: What to Know

Frequently, one must sell an existing property so that a new one can be purchased. However, did you know that when this swap occurs, one may be able to save money on taxes? It’s called a 1031 property exchange, and it can lead to significant savings in the event of a direct swap of non-homestead properties or the purchase of a replacement property a short time after a sale.

If you ever have questions about engaging in a 1031 exchange in Arkansas, our team at First National Title Insurance Company is here to help! In fact, we now have 10 convenient locations throughout the state of Arkansas! You’ll need professional advice to make a 1031 exchange, but here are the basic rules:

The properties must be “like-kind”

Personal residences aren’t typically eligible for 1031 exchanges, but if you’re exchanging investment properties, you can qualify if both properties are located in one of the 50 U.S. states, and have the same basic nature, character, and class. It doesn’t matter if the land is vacant or improved, as long as it’s classified as “like kind.”

All proceeds must be reinvested

Typically 1031 exchanges involve an investor selling a property to purchase a property that is comparable in value. In the event that the replacement property is more expensive, you’re generally allowed to make up the difference with cash or other assets, but you’re typically not allowed to purchase a property with a lower price and cash out the difference.

The exchange must take place within certain time limits

In most cases you have 45 days beginning on the date that you sell your property to identify potential replacement properties, and there are specific guidelines that you must follow to document your efforts.The exchange officially begins on the the date the deed is recorded on the property that is sold, or the date possession is transferred to the buyer (whichever is earlier), and ends 180 days after it begins or the date the exchanger’s tax return is due, including extensions, for the taxable year in which the relinquished property is transferred (whichever is earlier).

If you have questions about 1031 exchanges, closing, or escrow services, First National Title is here to help! Click here to contact us