The basics you need to know to defer capital gains taxes and the process
1031 exchanges are an IRS-approved strategy that allows investors who have real estate assets, commercial property, residential rental property, multifamily property, etc. to exchange those assets into a similar asset and defer recognition of all gains on the sale of a piece of property. It’s a strategy that's essentially been embedded in the Internal Revenue Code since 1921, and it's a strategy frequently used by sophisticated investors to continue to defer recognition of gains for years, decades, if not generations.
At KeyCity Capital, we have rental real estate funds that buy workforce housing units in the single and multifamily class allowing individuals who have highly appreciated rental real estate assets and highly appreciated commercial property to exchange their assets and take advantage of the 1031 exchange process, while exchanging their assets into our fund structures. We are a Tenant In Common approved fund. This means our funds have been approved by the Internal Revenue Service to accept 1031 exchange funds from clients who are selling highly appreciated real estate assets.
When you go under contract and you're selling a piece of property and you want to exchange that asset, you engage a qualified intermediary to hold title to your funds that come out of the sale process. That qualified intermediary then helps you identify a replacement property, and have 45 days from the closing time frame to be able to identify a replacement piece of property to defer your gains into. Thereafter, you have
a total of 180 days to execute the purchase of a replacement property. So when you go into a fund with KeyCity Capital, we will identify an acceptable replacement property within our fund, and you can exchange your gains and your property in a like-kind exchange into our fund and defer recognition of gain.
After exchanging into our fund, you’re treated like any other investor in our fund. You receive economic remuneration, including a fixed preferred rate of return (8% per annum), and you receive 80% of operating profits and gains on sale. This allows you to defer recognition of gains, and you're able to compound earnings that you would have normally paid out in income taxes by using the 1031 exchange process.
1031 exchanges are an IRS approved strategy that allows investors who have real estate assets, commercial property, residential rental property, multifamily property, etc. to exchange those assets into a similar asset and defer recognition of all gains on the sale of a piece of property.