IRC Section 1031 Attorney

Federal Tax Law

1031 Transaction Attorney

Canton Law attorneys have extensive experience in facilitating Internal Revenue Code Section 1031 exchanges involving real estate disposition & acquisition.

Internal Revenue Code Section 1031, often referred to as a "like-kind exchange" provision, allows taxpayers to defer capital gains taxes on certain types of property exchanges. The key concept behind Section 1031 is that when a taxpayer exchanges one investment or business property for another property of a similar nature, they can defer paying capital gains taxes that would normally be due upon the sale of the first property.

Here are some key points about Section 1031 exchanges:

Qualifying Property:

To qualify for a like-kind exchange under Section 1031, both the property being exchanged (the relinquished property) and the property received in the exchange (the replacement property) must be held for productive use in a trade or business or for investment purposes. Personal-use property, such as primary residences or inventory held for sale, generally does not qualify for like-kind exchanges.


There are strict timelines associated with Section 1031 exchanges. Taxpayers must identify potential replacement properties within 45 days of selling the relinquished property and must complete the exchange by acquiring the replacement property within 180 days.

Tax Deferral:

The primary benefit of a Section 1031 exchange is the deferral of capital gains taxes. By reinvesting the proceeds from the sale of the relinquished property into a replacement property, taxpayers can defer paying taxes on any capital gains realized from the sale. However, it's important to note that the tax liability is not eliminated entirely; it's only deferred until a later date when the replacement property is eventually sold without being exchanged.

Like-Kind Requirement:

The exchanged properties must be of a "like-kind," which does not mean they must be identical. Instead, the properties must be of the same nature, character, or class. For example, real estate can be exchanged for other real estate, or equipment can be exchanged for similar equipment.

Qualified Intermediary:

To properly structure a Section 1031 exchange, taxpayers typically use a qualified intermediary (QI) to facilitate the exchange. The QI holds the proceeds from the sale of the relinquished property and uses them to acquire the replacement property, ensuring that the taxpayer does not have direct access to the funds, which could invalidate the exchange for tax purposes.

Partial Deferral:

If the replacement property acquired in the exchange has a lower value than the relinquished property, the taxpayer may receive cash or other non-like-kind property (known as "boot") in addition to the replacement property. In such cases, the taxpayer may have to recognize gain to the extent of the boot received.

Tax Deferral:

Overall, Section 1031 exchanges can be a valuable tax planning tool for real estate investors and certain types of business owners seeking to defer taxes on the sale of appreciated assets. However, it's crucial to comply with the IRS regulations and seek professional advice when considering a like-kind exchange to ensure compliance and maximize tax benefits.

1031 Exchange Attorney:

Canton Law Group attorneys can play a crucial role in assisting with a 1031 exchange in several ways:

Legal Guidance and Compliance: The rules and regulations surrounding 1031 exchanges can be complex, and an attorney at our firm with experience in tax law can provide valuable guidance to ensure compliance with IRS regulations. We can help you understand the requirements for a valid exchange, identify potential pitfalls, and structure the exchange in a way that maximizes tax benefits while minimizing the risk of IRS scrutiny.

Documentation and Contract Review: An attorney here can assist in drafting and reviewing the necessary legal documents and contracts related to the exchange, including purchase agreements, exchange agreements, and closing documents. We can ensure that the terms of the exchange are properly documented and legally enforceable.

Qualified Intermediary Selection:

The selection of a qualified intermediary (QI) is a critical aspect of a 1031 exchange. An attorney can help you evaluate potential QIs, review their agreements, and ensure that they meet the necessary requirements to facilitate the exchange properly.

Due Diligence:

Conducting due diligence on the replacement property is essential to ensure that it meets your investment objectives and qualifies for the exchange. An attorney can assist in reviewing title reports, property surveys, environmental assessments, and other relevant documents to identify any potential issues or liabilities associated with the replacement property.

Tax Planning and Strategy:

An attorney can work with you and your tax advisor to develop a comprehensive tax planning strategy that takes into account your overall financial goals and objectives. They can help you understand the tax implications of the exchange, including potential tax liabilities and strategies for maximizing tax deferral.

Contingency Planning:

Despite careful planning, unexpected issues can arise during a 1031 exchange. An attorney can help you develop contingency plans to address potential challenges, such as failed exchanges, delays in closing, or disputes with the other party involved in the exchange.

Post-Exchange Compliance:

Even after the exchange is completed, there may be ongoing compliance requirements, such as reporting obligations or potential audits by the IRS. An attorney can provide ongoing support and guidance to ensure that you remain in compliance with IRS regulations and address any issues that may arise.

Work with a 1031 Exchange Attorney:

Overall, working with an experienced attorney can provide peace of mind and help ensure a smooth and successful 1031 exchange process while maximizing tax benefits and minimizing legal risks. Contact us today.

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