Section 1031 from the Internal Revenue Code helps investors to defer paying capital gains taxes whilst selling property. However, for all types of 1031 Exchanges, a NNN property is the most attractive option, since the tenant bears all property expenses – maintenance, insurance and real estate taxes! The five broad types of 1031 Exchanges are:
- Personal Property Exchange: In this case, the properties can be divided into Tangible or depreciable properties like livestock, artwork, vehicles etc., and Intangible or non-depreciable properties such as business licenses, website URL, copyrights etc(Triple Net Investment Group’s expert). In this kind of exchange, an investor can use Standard Industrial Classification (SIC) codes to determine if the properties fall under the same SIC code.
- Simultaneous Exchange: This exchange occurs when the sale and purchase of original property and the replacement property takes place on the same day or at the same time. Under this oldest form of exchange, the swapping of properties, preferably NNN property, takes place via the personal exchange of documents and deeds between NNN property owners.
- Reverse Exchange: It is not mandatory to sell the original NNN property at prior to buying the replacement property. Instead, the exchanger can buy the replacement property before closing on the sale of the relinquished property. However, this type of exchange needs to follow strict guidelines and can take place only in special cases.
- Improvement Exchange: also called the ‘build-to-suit’ or construction exchange, it allows the exchanger to improve the condition of the replacement NNN property by using the proceeds of the relinquished property(NNN property owners). The improvement can be a simple repair or a complete reconstruction to enhance the value of the property.
- Delayed Exchange: also termed Deferred Exchange or Like-Kind Exchange or Starker Exchange, this is the most popular type of 1031 exchange(Delayed 1031 Exchange ). A Qualified Intermediary can and should assist in completing the complex formalities of this and all other 1031 Exchanges, within 180 days.
The Triple Net Investment Group’s expert advisors have decades of experience in helping clients navigate 1031 Exchange sales and purchases of NNN property. Call or email, today.
