What is a 1031 Exchange?

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On April 25, 1991, the IRS issued deferred exchange regulation-Reg 1.1031(k)-1.
This tax code allows taxpayers to defer ALL of the capital gains taxes resulting from their sale of investment property, when they will, use a Qualified Intermediary & following the I.R.S. guidelines, use the money to buy more suitable investment property within 180 days of the close of their sale.
This means that you can reinvest the money you would otherwise have lost to capital gains tax if you will use the extra money to buy more investment property for the purpose of making more money. This can be done within and between all classes of real property anywhere in the USA. Our service team is here to help make 1031 exchange as easy and effective for you as possible.
Here is a simplified example of the difference (state taxes not included):
Selling Propery without 1031 Selling Property with 1031
Sale Price:$750,000$750,000
Less your Mortgage:$450,000$450,000
Cost Basis:$250,000$250,000
Taxable Gain:$500,000$500,000
Tax Rate (Base Federal Capital Gain):20%N/A
Taxes Due:$100,000$0
Left For Investment:$200,000$300,000
Total Savings:$0$100,000
This is why 1031 Tax-Deferred Exchange is often cited as "The Best Tax Loophole Left." When you get ready to sell that replacement property, you utilize 1031 tax deferral again. Now the amount of your tax savings has quadrupled. Bigger and better replacement properties that earn you more income can be yours. If you keep exchanging and never cash out, the difference in the size of your empire will be phenomenal! 1031 Exchange Help is a click or a phone call away.
The 1031 real estate exchange is also often referred to as the Starker 1031 Exchange or Starker Exchange, because Starker was the first case in which a non-simultaneous exchange was approved by the court. At first, the IRS disallowed the exchanges because the IRS believed that 1031 real estate exchanges could only qualify if all 1031 exchange real estate involved were transferred simultaneously. The IRS said there could be no amount of time between the transfer of the relinquished property and replacement property in an exchange. The Starkers paid their taxes and filed suits in the U.S. District Court in Portland, Oregon. Three court cases ensued, tried by District Judge Gus Solomon:

Starker 1
The first involved Bruce and Elizabeth Starker (Starker I- 1975). The IRS first filed a deficiency notice against Bruce and Elizabeth Starker. The Starkers paid the tax and sued for a refund. In a very short opinion, the court decided in favor of Bruce and Elizabeth Starker while making no mention of the fact that the exchanges were not simultaneous.
Starker II
In 1977, the government filed suit against T.J. Starker (T.J. Starker v. U.S., 431 F. Supp. 864 D. C. Ore. 1977). This time the court, the same one that ruled in Starker I, found that there was no exchange and that a taxable sale had taken place. This case reversed the first decision. Judge Solomon wrote he was mistaken in Starker I and stated, "My opinion in Starker I has been given wide publicity. I believe that it is desirable that my opinion in this case be published to prevent the mischief that I believe Starker I has caused." He further wrote that T.J. Starker had exchanged real property for a promise that was not like-kind under the statute. He ruled that the growth factor was taxable as interest.
Starker III
The third and final case was T.J. Starker's appeal (T.J. Starker v.U.S., 602 F. 2d 1341 9th Cir. 1979). The Ninth Circuit Court ruled that the government was collaterally stopped by Starker I from re-litigating nine of the transfers overturned in Starker II. Most importantly for real estate investors, the Court could not find any requirement for simultaneity in the 1031 tax code. The court ruled in favor of Starker. The delayed exchange was born!
What is a 1031 Exchange has developed over time since 1921, when all exchanges were simultaneous to today's more complicated reverse exchanges, and will doubtless continue.
Call our 1031 Exchange Experts to make a little history of your own.
Call for free 1031 Exchange Definition and Assistance.
Haven Exchange is a fully bonded Qualified Intermediary for 1031 Exchanges, with an unflagging commitment to security and service. We've coordinated over 11,000 successful exchanges and we are available from 9am to 5pm PST weekdays. We have a friendly, experienced support team, including CPAs specializing in 1031 Exchange, waiting to help you.

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