The Basics of Completing a 1031 Exchange for CPAs and Accounting Professionals

A 1031 Exchange is a powerful tool that allows property owners to defer paying taxes on the sale of their property. As a CPA, it’s important to understand the basics of how a 1031 Exchange works so that you can provide your clients with the best possible advice. Let’s take a look at what every CPA should know about completing a 1031 Exchange for their clients.

Overview of the Process

At its core, a 1031 Exchange allows property owners to exchange one type of property for another without triggering an immediate tax liability. This means that when someone sells an investment or business-related real estate and purchases another, they are able to defer any capital gains tax until they eventually sell their new property or decide to cash out.

The most important thing to remember is that both properties must be “like-kind” in order for the exchange to qualify under Section 1031 of the IRS Code. This usually means that both properties must be used either solely for business or investment purposes and fall into one of 16 categories (such as residential rental, office buildings, or land). Furthermore, you must also complete all steps within 180 days in order for the exchange to be valid.

Benefits and Challenges

The primary benefit of a 1031 Exchange is that it helps people avoid paying taxes on certain types of investments and business-related real estate sales. It also provides flexibility by allowing investors to buy more expensive properties than they otherwise would have been able to afford, thus allowing them to expand their portfolios more quickly.

However, there are some potential challenges associated with completing a 1031 Exchange as well. For example, it can be difficult for investors who are unfamiliar with the process to find qualified intermediaries who can help them facilitate the exchange. Additionally, if any part of the transaction falls out of compliance with IRS rules and regulations, then investors could end up owing back taxes plus interest and penalties on top of it!      

Getting Help                                                                         

Overall, completing a 1031 Exchange can be highly beneficial but requires careful planning and expertise in order to do correctly. As an experienced CPA, understanding how these exchanges work is key if you want to provide your clients with effective advice related to this type of transaction. With this knowledge in your arsenal, you will be well-equipped to ensure that your clients make informed decisions while navigating through this complex process. 

Finally, our experienced team of attorneys and qualified intermediaries are here to assist you and your clients with all aspects of the 1031 Exchange process. We are able to serve clients located anywhere in the United States. If you have questions or would like to schedule an appointment, simply call us at (888) 508-1901.