1031 Exchange - Selling and Buying Property in Utah

A 1031 Exchange, also known as a Like Kind Exchange, is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date. A 1031 exchange can be a great way to sell an existing investment property, and then buy a new investment property, while avoiding capital gains tax penalties. Below, we have some helpful information to better explain what a 1031 exchange is, how it works and some of the rules and regulations involved.

***This is intended to simply give you a quick summary of 1031 exchanges and not intended to guide you through the process.***

If you think a 1031 exchange may work well for your personal situation, we can help you get in touch with a qualified 1031 exchange accommodator.





Examples of a 1031 exchange
An investor buys a strip mall commercial property for $200,000. After six years he could sell the property for $250,000. This would result in a gain of $50,000 on which the investor would have to pay a capital gains tax, but, if he invests the proceeds from the $250,000 sale in another property, then he would not have to pay any taxes on the gain at that time. An owner of a detached house on 3 acres is transferred by his employer to another state. Rather than selling the home, which will no longer be his personal residence, he chooses to rent it out for a period of time. After ten years, he decides that he wants to sell it but, at the same time, he has a grown son who will be going to college in yet another state. He decides that he wants to buy an apartment building in the college town for the son and other students to rent while they are in school. His house has appreciated from $200,000 to $300,000. Therefore, he arranges for an IRC 1031 Exchange, and buys the new property, thus avoiding the capital gain at that time.

Time Limits:
There are VERY IMPORTANT time limits to be aware of in a 1031 exchange.  Contact us, and we can provide you with someone who is fully up to date with current laws and regulations.


The asset must be of like kind. Real property must be exchanged for real property, although a broad definition of real estate applies and includes land, commercial property and residential property. Personal property must be exchanged for personal property. (There are some complicated rules surrounding this -- for example, livestock of opposite sex are not considered like kind property for the purpose of a 1031 exchange.) The proceeds of the sale must be invested in a like kind asset within 180 days of the sale. However, the property must be identified within 45 days, but up to three properties may be identified. Restrictions are imposed on the number of Replacement Properties which can be identified as potential Replacement Properties. More than one potential replacement property can be identified as long as you satisfy one of these rules.


Although it is not used in the Internal Revenue Code, the term "Boot” is commonly used in discussing the tax implications of a 1031 Exchange. Boot is an old English term meaning “Something given in addition to.” “Boot received” is the money or fair market value of “Other Property” received by the taxpayer in an exchange. Money includes all cash equivalents, debts, liabilities or mortgages of the taxpayer assumed by the other party, or liabilities to which the property exchanged by the taxpayer is subject. “Other Property” is property that is non-like-kind, such as personal property, a promissory note from the buyer, a promise to perform work on the property, a business, etc.


The most common sources of boot include the following:


Debt reduction boot which occurs when a taxpayer’s debt on replacement property is less than the debt which was on the exchange property. As is the case with cash boot, debt reduction boot can occur when a taxpayer is "Trading down" in the exchange.




Boot limitations: Exchangers are advised to follow the following guidelines:



Not to receive property which is not like-kind.


The Three-Property Rule - Any three properties regardless of their market values.


The 200% Rule - Any number of properties as long as the aggregate fair market value of the replacement properties does not exceed 200% of the aggregate FMV of all of the exchanged properties as of the initial transfer date.

Time Limits and difficulties involved in meeting them



An alternative to a 1031 exchange for someone who wants to defer capital gains tax, but who does not want to continue to hold property is a structured sale. This method offers both buyer and seller many benefits and is regarded as ideal for those looking to retire from or exit from the real estate or business market.

How a 1031 exchange is accomplished










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