The term "1031" refers to a section of the Internal Revenue Code dealing with tax-deferred exchanges. This code provision states that property owners can sell their investment property and then reinvest those proceeds in another property without incurring a taxable incidence at the time of sale. Furthermore the two transactions can be separate and distinct. However, in order to qualify for this treatment, a property owner must comply with several strict guidelines:

1. Place sales proceeds into an appropriate trust set up by a qualified third party.
2. Identify up-leg property(s) within 45 days of closing down-leg (sold) property. Three or more properties can be named as long as they do not exceed 200% in value of the sold property.
3. Properties must be like kind. Nearly all real property is like kind except personal non investment residence.
4. New property(s) (up-leg) must close no later than 180 days from the sale of original property (down-leg).
5. To avoid any taxable portion of the transaction taking place, property owned must avoid incurring any "boot". Boot can be avoided by using all of the cash from the down-leg sale and acquiring debt equal to or greater than the debt on the sold (down-leg) property. By definition this means that the up-leg purchase price must be equal to or greater than the down-leg sale. Any shortage of any of the above elements on the up-leg purchase will be "boot" and that portion will be immediately taxable.

We will be happy to discuss with you the use of a tax deferred exchange in your investment planning in a general way. However, you should consult your own attorney or tax exchange accommodator (the one who sets up the trust for the exchange) for full details.