Like-kind exchanges under Section 1031 of the Internal Revenue Code offer tax shelter to owners of investment real estate. This provision allows you to trade properties while deferring income tax.
Increasingly, these exchanges involve “fractional interests.” In such deals, you relinquish your investment property and wind up sharing a larger property with other investors, known as tenants in common. As a result, you may be able to trade up to a higher quality property while winding down your commitment of time and effort. How do these exchanges work?
- You find a buyer for your investment property and close the sale.
- The sales proceeds are held by an unrelated intermediary.
- Within 45 days of the sale, you identify a larger property of which you’d like to own a share.
- Within 180 days of the original sale, the intermediary uses the proceeds from the original sale to purchase a share in the larger property.
If you’re interested, go to an Internet search engine and enter, “fractional interest real estate exchange” to locate sponsors’ Web sites.
