I think the above is pretty good, but needs a little clarification.

A 1031 exchange is a method to defer all or part of capital gains tax on the sale of investment or business property (not homeowners, thats a section 121 exchange - and different).

The basic rules of a 1031 exchange involve:

1. Selling property
2. All proceeds from sale of property in #1 held by 1031 exchange intermediary, and are never in the possession of seller
3. Identifying replacement (aka like-kind property) 45 days or less from sale in #1
4. Purchasing the identified replacement property(s) in #2 within 180 days or less of the sale of property in #1

Additionally, equity and debt must be replaced in the sale of property, a good rule of thumb is to buy a property of at least the same size of the property you sold.

The types of exchanges listed above look pretty good, but 90% of exchanges are typically the delayed 1031 exchange structure as listed above.

Any proceeds that are taken possession from the sale of the 1st property are called boot (cash, debt relief) and are taxable at your capital gains rate.

Like kind property is determined by use, not type. If a property was used for investment, any investment property will satisfy the requirement of like-kind property. This means if you sold a single family residence, you may purchase an office building as long as both properties were held for investment use (this is a common misconception).

You are permitted to reinvest the proceeds of your sale into any property type within the United States.

1031 exchange property means two general things. 1. The property you exchange into & 2. Is used as another name for NNN (triple net lease real estate) property.

The above are the basics, and will help you get off your feet with the information.

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A 1031 exchange also called 1031 exchange properties, property exchange, 1031 deferred exchange, or tax-deferred exchange can be found under Section 1031 of the Internal Revenue Code. It states that the taxpayer can replace his or her property with the replacement purchase of a like-kind property on a tax-deferred basis.

For example, a homeowner (or taxpayer) that is interested in selling his or her home to purchase a similar home up the street can use the exchange rule if the target house or house to be purchased meets the criteria of a 1031 exchange, meaning target house is a like property (single-family residential, in this case) and the value (after performing a CMA and appraisal) of both houses are the same, e.g., both houses are worth $300,000.

Many people think that most 1031 exchanges are the result of a homeowner who enters into a "meeting of the minds" or Exchange Agreement with another homeowner to exchange deeds without a professional intermediary. Although this is acceptable and legal, it is not the rule. In most 1031 transactions, the seller of the replacement property does not buy the other's relinquished property.

The basic types of 1031 exchanges include:

• Simultaneous exchange - both replacement and relinquished properties close on the same day
  
• Delayed exchange - the replacement property is closed on a later date than is the relinquished property
  
• Reverse exchange (title exchange) - the taxpayer purchases and closes on the replacement property before selling his relinquished property. The intermediary or title company takes title of the replacement property under the Exchange Agreement until the taxpayer's relinquished property is sold. Once the relinquished property is sold, the intermediary confers title to the taxpayer of the replacement property.
  
• Improvement exchange (another title exchange) - the taxpayer desires a replacement property, but needs to make improvements on the replacement property to satisfy the exchange of the replacement property. In the Exchange Agreement, the intermediary takes title to the replacement property until the improvements on the replacement property have been made. Once the improvements are made and the Exchange Agreement has been satisfied, the intermediary conveys title to the taxpayer of the replacement property.

Before listing examples of 1031 exchanges, let's define the term "boot." A boot is taxable money paid to a taxpayer from an exchange in which the value of the replacement property lags the value of the relinquished value and vice versa. A true 1031 exchange is not only the purchase of like-kind but also like-value properties. To take full advantage of 1031 exchange benefits, the taxpayer should never "trade down" for a replacement property. The taxpayer should always hold to the 1031 maxim: replace property with a property of equal or greater value.

Again, the replacement property must be like-kind. For example, a single-family residence can be replaced by another single-family residence but not income property such as a rental or business building. Conversely, a duplex can be replaced by a four-plex but not by a single-family residence or business building.

The main benefit of participating in 1031 exchange properties allows the taxpayer to sell investment, business, or income property and purchase like-kind replacement property without having to pay taxes to the federal government.

The disadvantage of 1031 exchange properties is since the replacement property has a reduced rate for depreciation, the replacement property's deferred gain is taxable at some future date when the taxpayer decides to sell the replacement property.

To find out more, taxpayers can enlist the services of a public accountant, tax advisor, attorney, realtor, or title representative to have a 1031 explained to them.

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