1031 Starker Exchange

A 1031 Starker exchange is nothing more than a 1031 exchange, also known as a like kind exchange, delayed exchange, or tax free exchange. It was named after T.J. Starker, who challenged the IRS in the 1970s over a property exchange he made. He won, and the result led to today's IRS code section 1031.

What Is a 1031 Starker Exchange?
Basically, a 1031 Starker exchange is a trade off that promotes reinvestment. Congress wants Americans to invest in real estate, so they allow us to defer paying capital gains taxes when we sell property and use the profits to buy more investment property. There are stipulations; the code is very specific and there are services out there that specialize in facilitating this type of exchange.

In order to take advantage of a 1031 Starker exchange, you must close on the replacement property within 180 days. You also have only 45 days from the closing of your "relinquished" property to identify potential reinvestment properties, and must show intent to exchange before you sell the first property. You must also use the services of a qualified intermediary, or QI, who holds the funds for you in trust.

In addition to real estate, personal property also qualifies for Starker exchange, with certain limitations. It must also be used to generate income or in business, and can include items like equipment, aircraft, or art collections. The code for personal property is stricter and more complex than the rules for real estate exchanges, so if you want to defer your capital gains taxes on personal property, seek professional advice.