A Section 1031 tax deferred exchange, named for the IRS Section it refers to (can also be called a Starker Exchange, Like-Kind exchange or a Tax Free Exchange), permits an exemption to the real estate capital gains tax. If you sell your investment real estate or a business, replace it with a different business or investment property, and complete an exchange, you can postpone payment of the capital gains tax generally necessary on these sales. You can bypass capital gains tax as well on rental property capital gains tax with the 1031 tax exchange.

To perform a 1031 Exchange, one must use a qualified intermediary. The exchanger must transfer right, title & interest to the qualified intermediary the moment the transaction is closed in escrow.

• All documents have to be prepared & signed before the escrow closing.
• After the closing of sale in escrow, the qualified intermediary is required to place all funds into an account of high interest.
• At this point, the exchanger has 45 days to identify a suitable replacement property. Identification of replacement property is satisfied by mutual acceptance & execution of a purchase & sale agreement between a seller & the exchanger.
• The qualified intermediary forwards all funds including the accrued interest to the escrow at closing to complete the transaction.