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Those in Davenport, IA, selling a non-residential property may be able to defer the capital gains tax through a 1031 exchange. The property owner must purchase another similar property type of equal or greater value to meet the Internal Revenue Code, Section 1031, also known as a 1031 or tax deferred exchange.

A typical 1031 exchange includes the taxpayer (seller) selling the property to a buyer and having a replacement property to purchase with the proceeds from the sale. This must be completed within a specific time period with a Qualified Intermediary or QI managing the process. This time period is 45 days for the identification of the transaction and then 180 days for the exchange. The property buyer pays the QI, not the seller, and the QI then pays the seller of the replacement property. The properties do not have to be in Davenport, IA, for the QI or the Exchange Accommodation Titleholder to process the exchange.

The Reverse 1031 Exchange Difference

The process is slightly different for the reverse 1031 exchange in Davenport IA. In this situation, the seller (taxpayer) purchases the replacement property before the sale and transfer of the property currently owned. This must be carefully managed as the taxpayer cannot own both properties at the same time under the Internal Revenue Code to be able to qualify for the 1031 exchange tax deferral.

The reverse 1031 exchange is typically done through a single member LLC which is formed by an Exchange Accommodation Titleholder or EAT. The role of the EAT is to set up a Qualified Accommodation Arrangement to maintain separate ownership of the property purchased (replacement property) and the property sold (relinquished property) to ensure full compliance with the laws of the 1031 exchange.