This is a famous quote from Wealth of Nations written by Adam Smith in 1776. The meaning behind this quote was mainly to define the theory that drives capitalism, however, it can be applied in many different aspects of business. At HBC, we work with several clients every year that are involved in a 1031 Exchange. A 1031 exchange allows a real estate investor to defer capital gain taxes on the sale of a property by allowing the individual (aka “Exchanger”) to reinvest that money earned from the sale of a property as a down payment towards the purchase of a new property. Many people we speak with are not clear on the rules of a 1031 Exchanges. We always advise that clients speak with a qualified 1031 Exchange Company, their personal attorney and also their CPA. We are not lawyers and we do not claim to provide any tax advice, however, we would like to provide our perspective of what we understand are the rules of a 1031 Exchange.  Our understanding is that once a property is sold the Exchanger has 45 days to identify a new property that they will purchase. The Exchanger must close on the purchase of that new property within 180 days of the sale date of their prior property. Also, the Exchanger must own the new property with the exact same ownership structure that they owned the old property.  For example, if the Exchanger owned a hotel in the name of ABC, Inc. and they personally owed 100% of ABC, Inc. then they must own the new property 100% personally as well in the name of ABC, Inc. Again, we are not attorneys and we strongly advise that buyers speak with a qualified 1031 Exchange Company, their attorney and also their CPA. However, a 1031 Exchange is a great method for buyers to preserve their equity in their properties and save while saving a great deal on income taxes.

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