‘Section 1031 Like-Kind Exchange’ is a part of the Residential Purchase and Sale Agreement.
What is it addressing?
In the Northwest Multiple Listing Purchase & Sale Agreement it is simply an agreement between Buyer & Seller to cooperate in signing the necessary closing papers required for the party doing a 1031 exchange to complete that part of the process. It also insures no additional cost or liability for the party of the transaction not doing a 1031 Like-Kind Exchange.
What is a 1031 Like-Kind Exchange?
A Section 1031 Like-Kind Exchange applies in real estate to investment property. A “1031 Exchange” provides an exception the IRS code and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. To qualify, property owners must exchange real or personal property (the relinquished property) for other property of “like-kind” (the replacement property). It is important to get an understanding of “like-kind”. In some scenarios the relinquished property may be an obvious like-kind to the replacement property. However, if there is any question it is extremely important to consult a full-time 1031 facilitator &/or an experienced tax professional prior to the transaction.
An exchange must be planned ahead of the sale and must include a qualified intermediary to handle the transfer and handling any of funds. This type of transaction involves many details and financial planning with a facilitator and your CPA. Including strict deadlines that must be met.
For more detailed information consult the following IRS Fact Sheet and consult a tax professional.