The delayed exchange is a very special investment technique, which can only be used in real estate transactions. You are allowed to sell your property today and to reinvest the profits as long as six months later without having to pay the taxes due on the sale. Taxes are deferred to a future date that you choose. The 1984 Tax Reform Act provided Congressional approval of the concept of delayed exchanging by requiring that the investor identify his like-kind property within 45 days and completes the exchange by 180 days after the sale of his property.

Like-Kind Property:
The Internal Revenue Code Section 1031 (a) (1) says, "no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment." Property that is held for investment can be exchanged for any other property that is being held for investment and the investor will be allowed to defer paying capital gains taxes.

Exchange Strategy:
Investors buy real estate to earn a profit. Decisions are carefully made to determine the effects of location, potential rents and expenses, financing and a number of other important factors in an attempt to gain as much profit as possible. Once the profit is made, the typical investor sells his property, pays his taxes and reinvests in other real estate. Exchanges are useful in a wide variety of circumstances. They provide excellent opportunities for resourceful investors to create transactions, which would not be possible through a sale/purchase format. The overriding advantage of exchanging is in the ability to move equity from property to property without having to pay the capital gains taxes. Exchangers can create an entire investment program using the wide variety of benefits available.