Some of the requirements of a successful exchange are as follows:

• A qualified intermediary (QI) is required to facilitate the exchange. Through an exchange agreement, The QI acquires, hold and conveys both properties, controls the sale proceeds and guides the exchanger through the exchange process.  
• The exchanger must not have actual or constructive receipt of the sale proceeds, including deposit monies.  
• Once the relinquished property is conveyed to a buyer, the exchanger has 45 days to identify replacement property and a total of 180 days to acquire it.
• To maximize the tax-deferral, replacement property of equal or greater value and equity must be acquired. In the event of a trade down in value or equity, the exchanger is taxed on the amount of the trade down.
• Title to the replacement property must be held in the same name as the relinquished.

In addition to the investment objectives already mentioned, an exchange is a great wealth accumulation vehicle and estate planning tool. The fact that one may complete exchange after exchange and continue to rollover the gain allows the gain to be deferred indefinitely. Upon the death of the exchanger, the heirs inherit the property with a stepped-up basis thus eliminating all deferred gain. Using 1031 exchanges, you have the ability to grow your real estate portfolio with pre-tax dollars.

While real estate exchanges account for a majority of 1031 exchanges, you can exchange any type of asset held for business use or investment, including tangible and intangible assets. A few examples include airplanes, construction equipment, rental car fleets, artwork, patents, race horses, distribution rights and livestock. When exchanging personal property, "like-kind" replacement property must be acquired which means something within the same asset class or the same type of asset. When exchanging, in addition to deferring the capital gains, you also defer the depreciation recapture. For business owners who took bonus depreciation in recent years, this is especially beneficial and helps keep valuable capital invested in the business.

Business owners have long utilized 1031 exchanges to help grow their business. They can also help a business relocate to a better location or a more efficient facility or expand into several locations as well as replace equipment and vehicles. Additionally, exchanges can provide an exit strategy for retiring business owners by exchanging business related real property for other incoming producing real estate or even a future vacation home or primary residence.

In closing, 1031 exchange can assist investors and business owners accomplish many short and long-term objectives. Whenever selling an asset held for business use or investment, be sure to discuss how you might benefit from a 1031 tax-deferred exchange.