Can I do a partial 1031 exchange?

Yes. Whenever considering a partial exchange talk with your tax advisor to determine whether it is in your best interest.

Can I use 1031 exchange proceeds to make improvements to my replacement property?

Exchange funds can only be used to purchase like-kind real estate. Making improvements or repairs to a property is considered to be purchasing labor and materials so it does not qualify as an acceptable use of exchange funds.

Can the Earnest Money Deposit (EMD) for the replacement property be paid from 1031 exchange proceeds?

Yes, the EMD can be paid from the proceeds. All that is needed is the contract, amount of the deposit needed and wire instructions.

How much do I need to spend on a replacement property in order to fully defer my taxes for a 1031 exchange?

To fully defer your tax obligations, you will need to trade equal or up in value. For example, if you sell an investment property for $500,000 you will need to purchase property or properties valued at $500,000 or more in order to fully defer your taxes. While all the net equity must be used to acquire replacement property, reinvesting only the exchange proceeds (net equity) will not fully defer your tax obligations.

If I sell a single-family home can I do a 1031 exchange and buy land?

Yes. IRS rules regarding "like-kind" property state that all qualifying real property located in the United States is like-kind. Property located outside the United States is not like-kind to property located in the United States.

What closing costs can be paid with 1031 exchange funds?

Some closing costs can be covered with exchange funds, these are considered "expenses of the exchange". Only items that are a direct cost of selling/buying real property, which typically include: real estate commissions, title insurance premiums, closing or escrow fees, legal fees, transfer taxes, notary fees, recording fees, etc. "Transactional expenses", such as mortgage points and assumption fees, prepaids required by the lender for insurance and real estate taxes, credit reports, loan acquisition fees, lender's title insurance, utility charges, association fees, hazard insurance, credits for lease deposits, prepaid rents and security deposits should NOT be paid with exchange proceeds as using exchange proceeds to pay them may be deemed taxable.

What does Towne 1031 Exchange need to set up my exchange?

We will need a copy of the contract for the property you are selling as well as the contact information for the settlement agent/escrow officer who is handling your closing. We will also need identification information for the person or entity selling the relinquished property in order to open your exchange account at TowneBank.

What happens if I do not identify a replacement property by the 45-day deadline for a 1031 exchange?

If your 45-day identification deadline passes and no identification was submitted, the exchange funds will be returned after the 45th day and will be subject to taxes.

What happens if I identified properties, but I'm unable to purchase them when I do a 1031 exchange?

If one or more properties are identified and your 45-day deadline has passed, your funds will be held in the exchange account until after the 180-day deadline has passed, the funds will then be returned and subject to taxes.

A 1031 Exchange Intermediary

Towne 1031 Exchange, LLC, headquartered in Norfolk, VA, can act as qualified intermediary for 1031 exchanges nationwide.

At Towne 1031, we provide the following services:

Necessary documentation
Deadline management
Coordination between parties such as your attorney, CPA, realtor, and closing agents
Depositing your proceeds into an interest bearing FDIC-insured account at TowneBank until your replacement property is acquired.

Reach out to Ute Heidenreich or Leila Bradley,CES® to get your process started.

What is a 1031 Exchange?

A 1031 Exchange, also known as a tax-deferred exchange or Starker Exchange, relies on Section 1031 of the U.S. Instead of paying capital gains taxes and depreciation recapture taxes at the time of the sale of an investment property, investors can defer their tax obligations by acquiring other investment real estate and using a qualified intermediary to complete their exchange. Internal Revenue Code that affords significant tax advantages to owners of commercial property and residential investment real estate owners. When you use a qualified 1031 exchange intermediary you can reinvest proceeds from the sale of an investment property into the acquisition of a replacement property, within certain time limitations and by following all other 1031 regulations.

Meet Our 1031 Exchange, LLC Specialists

Explore the Benefits of a 1031 Exchange

Conversion to personal use property and eventually qualify for primary residence exclusion.

Deferral of tax obligations associated with the sale of investment property.

Consolidation or diversification of investment property portfolio.

Defer gains may be forgiven upon death which can help to preserve your estate.

Apply funds that would have been paid to the IRS toward a down payment on a new property.

Relocation of investment property to a more convenient or desirable location.

Explore More 1031 Exchange Resources

1031 Exchange FAQs

Yes. Whenever considering a partial exchange talk with your tax advisor to determine whether it is in your best interest.
Exchange funds can only be used to purchase like-kind real estate. Making improvements or repairs to a property is considered to be purchasing labor and materials so it does not qualify as an acceptable use of exchange funds.
Yes, the EMD can be paid from the proceeds. All that is needed is the contract, amount of the deposit needed and wire instructions.
To fully defer your tax obligations, you will need to trade equal or up in value. For example, if you sell an investment property for $500,000 you will need to purchase property or properties valued at $500,000 or more in order to fully defer your taxes. While all the net equity must be used to acquire replacement property, reinvesting only the exchange proceeds (net equity) will not fully defer your tax obligations.
Yes. IRS rules regarding "like-kind" property state that all qualifying real property located in the United States is like-kind. Property located outside the United States is not like-kind to property located in the United States.
Some closing costs can be covered with exchange funds, these are considered "expenses of the exchange". Only items that are a direct cost of selling/buying real property, which typically include: real estate commissions, title insurance premiums, closing or escrow fees, legal fees, transfer taxes, notary fees, recording fees, etc. "Transactional expenses", such as mortgage points and assumption fees, prepaids required by the lender for insurance and real estate taxes, credit reports, loan acquisition fees, lender's title insurance, utility charges, association fees, hazard insurance, credits for lease deposits, prepaid rents and security deposits should NOT be paid with exchange proceeds as using exchange proceeds to pay them may be deemed taxable.
We will need a copy of the contract for the property you are selling as well as the contact information for the settlement agent/escrow officer who is handling your closing. We will also need identification information for the person or entity selling the relinquished property in order to open your exchange account at TowneBank.
If your 45-day identification deadline passes and no identification was submitted, the exchange funds will be returned after the 45th day and will be subject to taxes.
If one or more properties are identified and your 45-day deadline has passed, your funds will be held in the exchange account until after the 180-day deadline has passed, the funds will then be returned and subject to taxes.

Towne 1031 Exchange does not provide tax or legal advice. Please consult an accountant and/or attorney.

The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.