Section 1031 of the Internal Revenue Code provides a method of deferring the capital gains tax on the sale of currently owned property by exchanging the property for a newly acquired "like-kind property".


  • Taxpayer– Party attempting to defer capital gains; sometimes referred to as the Exchanger. Relinquished Property – Property the Taxpayer seeks to dispose of in the exchange. Replacement Property – Property the Taxpayer seeks to acquire in the exchange.
  • Buyer – Purchaser of the relinquished property.
  • Seller – Seller of the replacement property.
  • Qualified Intermediary – Party who enters into the Exchange Agreement with the Taxpayer, acquires the Relinquished Property from the Taxpayer, transfers the Relinquished Property to the Buyer, invests the proceeds from the transfer of the Relinquished Property, acquires the Replacement Property from the Seller, and transfers the Replacement Property to the Taxpayer.

the exchange process


Prior to closing the Relinquished Property, the Taxpayer signs an Exchange Agreement with Corporate Exchange Services ("CXS") and assigns the seller’s interest in the purchase agreement for the Relinquished Property to CXS. CXS directs the closer to disburse the proceeds of the sale to CXS, and directs the Taxpayer to directly deed the Relinquished Property to the Buyer. CXS invests the proceeds of sale until the purchase of the Replacement Property. The Taxpayer must identify potential Replacement Properties within 45 days of the closing of the Relinquished Property. Taxpayer has 180 days from the same date to close on the purchase of the Replacement Properties.Like-kind property Prior to closing the purchase of the Replacement Property, the Taxpayer assigns the purchaser’s interest in the purchase agreement to CXS. CXS uses the invested sale proceeds to purchase the Replacement Property and directs the Seller to directly deed to the Taxpayer.


Any real estate held for investment or for use in trade or business is "like-kind" and may be exchanged for any other real estate held for investment or for use in a trade or business.


To defer all tax, just trade up in value and equity. Relinquished Property and Replacement Property must be either held for investment or held for productive use in trade or business. Properties held for personal use, such as primary residence, do not qualify. Taxpayer may not receive or have control over the proceeds of sale of the Relinquished Property.


sales vs exchange

Assume an investor sells a fully depreciated property with no debt for $1,000,000. The capital gain is $1,000,000 ($600,000 from the depreciation recapture and $400,000 from the appreciation). The current federal tax rate is 25% on depreciation recapture and 15% on appreciation. Assume state rate of 4%.

The deferral of the payment of capital gains taxes clearly allows the investor to purchase replacement property of substantial greater value than the investor who sells and pays capital gains taxes!

In addition, a 1031 exchange provides an investor with many non-tax benefits, such as reducing management obligations, improving cash flow, changing property types and providing for retirement planning.


Corporate Exchange Services has handled a large volume of complex reverse and build-to-suit exchanges. A reverse exchange may be utilized when a Taxpayer must acquire a Replacement Property prior to selling the Relinquished Property. Although this process is more complex and costly than a Forward Exchange, the deferral of capital gain taxes is still accomplished.


CXS was established in 1995 and has effectuated hundreds of forward, reverse and improvement/build-to-suit exchanges. Owners, Maura A. Snabes* and Jerome E. Jelinek,** are attorneys with over 40 years of combined real estate experience, who will personally assist in effectuating your 1031 exchange and answering your questions. Contact us at 231-237-1100 or MSnabes@corp1031.com.

*Licensed in Michigan. **Licensed in Michigan and Florida.