1031 Exchange Information

A 1031 exchange, also called a "like kind" exchange, refers to the Internal Revenue Service code 1031. This code specifies that when a piece of real estate property (like a commercial building or plot of land) is sold, no gain or loss is recognized if the profits are immediately invested in a similar asset of "like kind" that is of greater or equal value. In other words, with a 1031 exchange an investor can defer paying taxes on the sale of the property until a later time if he immediately invests the proceeds into more property.

The code is applicable under specific conditions, which, in broadest terms, state that the new asset invested in must be of "like kind" and that the investment or loan must take place within 45 days of the close of the sale. One way to look at a 1031 exchange is as an interest free government loan.

Difficulties of Completing a 1031 Exchange

One of the most difficult aspects of making a 1031 exchange work is finding a new investment property within the 45 day limit. The IRS is very strict about complying with the 1031 exchange restriction and rarely allows extensions. Once a replacement property has been found, the next challenge comes in obtaining the extra capital needed to complete the 1031 exchange. Fortunately, there is an easy way to overcome that challenge.

The 1031 Exchange Solution

An easy and effective solution for obtaining the extra 1031 exchange capital is to obtain a bridge loan. Bridge loans are designed specifically to help a commercial loan borrower finance a property for a short period of time. While this often applies to borrowers who expect to sell the property quickly or refinance in the near future, it can also prove useful to a real estate investor looking to complete a 1031 exchange. Since bridge loans are usually intended to be short-term loans, it allows the property owner to quickly close the purchase of a replacement property so that he remains within the time limit imposed by the 1031 code.

Security National Capital, a division of Security National Financial Corporation, provides commercial owners with the capital they need for a 1031 exchange by offering bridge loan on a variety of commercial properties from retail to office buildings, industrial to healthcare. Bridge loans are usually offered for terms of 12-36 months, just the amount of time that a property owner would need for a 1031 exchange. Many of these loans can also be refinanced into low cost, long-term financing through Security National Capital, if needed.

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