Section 1031 Exchange



The 1031 Tax-Deferred Exchange allows investors who sell property to transfer unrealized capital gain on one property to another property of like kind without paying capital gains tax. To qualify, the property must be used in a trade or business or held for investment purposes.

Although principal residences are excluded, a wide variety of property can be exchanged within Section 1031. For example, improved real property can be exchanged for unimproved real property or several units can be exchanged for one large property or vice versa. Interstate sales can also qualify, such as trading a multi-tenant complex in Connecticut for a beach condominium in Florida. The taxpayer can also choose to transfer only a portion of the unrealized capital gain to a qualified property and take the remainder out in cash as a taxable gain.

Typically, the property sold and the new purchase cannot be exchanged the same day. For example, the investor has not yet chosen a suitable new property. In this case, a Qualified Intermediary Escrowee, such as Essex Savings Bank Trust, can receive and escrow the proceeds from the sale. The investor has 45 days to identify a new property and 180 days to complete the new transaction. In addition, the bank pays interest on the escrow proceeds during this interim period.

Why Use Essex Savings Bank as Escrowee and Qualified Intermediary?

What Exclusions Apply?