1031 Exchange, is to some people a complete different language. If you don't understand it, then you need to hire an "in between" (Qualified Intermediary) person that will not lead you into "tax jail", if you know what I mean.
The whole theory behind the 1031 exchange is that it is suppose to save you taxes - if done correctly and fast. The key words that describe a 1031 exchange is: A LIKE KIND EXCHANGE, DEFERMENT, REINVESTMENT and ASSET.
What is Like Kind Exchange?: This is something that seems to be the hardest to understand. This LIKE EXCHANGE can not be used from an investment property to a personal home residence. It can only be from investment property to investment property. For example: An investor buys a commercial property (a multi-family house, apartment building a commercial storefront, etc) for $300,000. After six years he/she sells the property for $400,000. This results in a gain of $100,000 on which the investor would have to pay a capital gains tax. But if he invests the $100,000 in another property, then he/she does not have to pay any taxes on the gain now. But here is the catch - YOU MUST identify a new property that the investor will be buying within 45 days, in writing. If you fail to do this, on the 46th day you will be liable for the taxes on the $100,000 gain. When I say "Like kind" - does not mean it has to be the same - you can upgrade, but not down grade and pocket the balance.
What do you mean by - DEFERMENT?- You are deferring any taxes owed on the capital gains of $100,000 by using the capital gains to purchase a new property.
What does REINVESTMENT mean? - Taking the capital gains "profit" and reinvesting that amount into another property - of like kind.
If used correctly the 1031 Exchange has been proven to benefit the investor. Any investor that is buying and selling properties SHOULD know about this - if not, you are costing yourself ALOT of money.
*Can a co-op or Condo be used in a 1031 Exchange? YES, it has been determined that Co-ops and Condos ARE real property and it can be used in the exchange. There are somewhat stingent rules on this category - so you should get the facts in black and white.
*After identifing the exchange property, how long do I have to fully close on the property? 180 days.
Is there a time frame on how long I must own the property and resell the property? There are no hard rules that I can tell - right now.
Who can hold the money (capitol gains) while I wait to close on my identified property? You can NOT hold onto the capital gains money. Your mother, father, son, attorney or friend CAN NOT hold onto the money even in an escrow account. You must identify a Qualified Intermediary.
A Qualified Intermediary that I recommend:
BayView Financial: 1031 Exchange Tax Deferral Strategies Information and Services