Attorneys Assisting Utah Real Estate Investors With 1031 Exchanges

Serving clients in Provo and statewide since 1957

Deferring tax liability is a key goal of many investors, and it might be possible if you are intending to sell real estate and then use the proceeds to by a different property. Jeffs & Jeffs, P.C. in Provo works with Utah clients to successfully manage these sequenced transactions, known as “1031 exchanges.”

What is a 1031 exchange?

In a 1031 exchange, an investor who sells real estate that has appreciated in value can avoid immediate capital gains tax liability by purchasing another parcel within a given timeframe. This is referred to as a “like-kind exchange.” Depending on the specific circumstances, deferring the capital gains tax can carry a significant financial benefit for the real estate investor. However, this potential benefit could be lost if the strict federal rules governing 1031 exchanges are not followed.

Are there federal guidelines that govern 1031 exchanges?

Yes, and if you’re considering this type of arrangement, our real estate attorneys can advise on the requirements that must be met to gain the tax advantage, such as:

• Investment or business use — You cannot sell or buy a personal residence in a 1031 exchange. Both properties must be for investment or business use. There might be other ways to reduce tax exposure in a residential transaction though.
• Timelines — Following the sale of the original property, you have 45 days to identify up to three parcels that could serve as a replacement property. Purchase of the replacement property must occur within 180 days of the original parcel’s sale.
• Qualified intermediary — Once you sell the original property, you cannot take possession of the funds. Rather, these moneys must be shifted to a qualified intermediary for holding until the funds are used to purchase the new property.
• Equivalent or higher value — The value of the new property must be equal to, or greater than, the value of the property that is sold. If not, the remaining funds, sometimes called the “boot,” are subject to immediate capital gains tax.

Should you be eligible and interested in this method of tax deferral, we will outline the process for you.

Does Utah have any special rules pertaining to 1031 exchanges?

Utah follows the general IRS rules for 1031 exchanges. However, managing the specific details of a commercial exchange or the transfer of an investment property often requires local knowledge. You can turn to us to help complete the sale of the original parcel, the placement of funds with the qualified intermediary and the purchase of the new property.

How can Provo real estate investors initiate 1031 exchanges?

If you’ve decided to pursue a 1031 exchange, it’s wise to consult with an attorney to make sure you are eligible for this type of favorable treatment. You should also be ready to sell your existing property and have some ideas about the parcel you intend to purchase. Once everything is in place, we can assist with both real estate transactions and with the movement of assets to and from the qualified intermediary.

What potential complications can arise during 1031 exchanges?

With proper planning, you should be able to avoid complications that threaten the completion of your 1031 exchange. However, if a question arises about the nature of the property, compliance with timelines, the relative value of each parcel or whether a valid intermediary was used, our firm will stand up for your interests.

Contact a Utah attorney for a consultation regarding a 1031 exchange

Jeffs & Jeffs, P.C. in Provo advises Utah clients on the rules pertaining to real estate transactions under Section 1031 of the Internal Revenue code. To make an appointment, please call us at 801-373-8848 or contact us online. Our office is located two blocks from the Provo courthouse and one block from the Latter-Day Saints Historic Provo Temple.