What is a 1031 Exchange
A 1031 exchange, also called a Starker or Like-Kind exchange, is a mechanism to defer capital gains and other taxes on the sale of real property when the real property is replaced with real property of a similar use or kind (i.e., investment property). In other words, if the 1031 exchange is properly structured, you won't have to pay certain taxes when selling the investment property today, but you may have to pay those taxes months or years down the road depending upon how you structure your real property ownership.
The Internal Revenue Service rules and regulations regarding how to properly structure a §1031 exchange are extensive, books are even written about the process, so please consider this a brief introduction into the topic. Every exchange is different and the application of the general principles discussed below will vary depending on the specific facts of the transaction. You (as the taxpayer) should seek the advice of your attorney or tax consultant before participating in a 1031 exchange as Knight Barry Exchange LLC ("KB Exchange") and its sister companies do not and will not provide legal or tax advice to you.
Qualified Intermediary is defined in 26 CFR §1.1031(k)-1(g)(4) stating that a Qualified Intermediary is a person who (A) Is not the taxpayer or a disqualified person (as defined in 26 CFR §1.1031(k)-1(k)), and (B) Enters into a written agreement with the taxpayer (the "exchange agreement") and, as required by the exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer. The Qualified Intermediary is a 3rd party, not related to you, who must hold the $$ from the sale of your current investment property (Relinquished Property) which $$ will be reinvested into your new investment property (Replacement Property). YES KB Exchange IS a Qualified Intermediary.
Relinquished Property is defined in 26 CFR §1.1031(k)-1(a) as property exchanged by the taxpayer that is "held for productive use in a trade or business or for investment".The Relinquished Property is your current investment property that you are selling and will be replacing with new investment property.
Replacement Property is defined in 26 CFR §1.1031(k)-1(a) as property received by the taxpayer "to be held either for productive use in a trade or business or for investment". The Replacement Property is your new investment property that you are buying to replace your old investment property.