Many companies and individuals enter into a 1031 exchange agreement to save money and increase value while deferring taxes until a later date.  This allows the sale profits of the relinquished property to be put directly towards the purchase of the replacement property, without money being removed from this amount for tax purposes.  This service comes in several forms and can save a business thousands while allowing for a more expensive property to be purchased.  This can mean the difference between an okay property and an amazing property.

The premise of the 1031 exchange agreement is that a property, be it real estate, manufacturing, or livestock, can be sold and "replaced" with a like kind property of equal or greater value than the original. This is to mean that a $75000 manufacturing building can be "replaced" with a $150000 dollar apartment building, with the taxes from the initial sale being deferred until the sale of the apartment building in years to follow.  This example uses the two primary rules of the 1031 property exchange agreement by complying with the like kind rule, both properties are real estate, and by complying with the equal or greater value to the replacement property.  The $150000 apartment building was worth more than the $75000 manufacturing building.  

In the 1031 exchange agreement, the taxpayer, or one in the exchange, must sell, and purchase new property within 45 days of the initial sale.  This time limit can be increased if an extension is submitted before the end of the 45th day.  This extension must be accompanied with a listing of all properties one is looking at and only those properties will be considered viable for the 1031 exchange agreement.  The extension period is no more than 180 days beyond the initial sale date.  

As has been stated repeatedly, but not explained, the 1031 exchange agreement means that the taxes that would normally be garnered from the sale of the initial property is deferred until a later date.  This is to mean that the entirety of the sale money from the initial property can be used to purchase a loan or property.  This can save a business thousands of dollars in very little time or effort.

An example of the money that a 1031 exchange agreement can save is that of the $100000 property.  If this property was sold without the 1031 exchange agreement, the taxes on this property could be $35000.  This would leave $65000 for a loan purchase.  Provided all of the money is used as a 25% down payment, the loan could be worth $260000.  Provided the typical 75% loan value to property value, $325000 in property is purchased.  That same property using the 1031 exchange agreement could put $100000 down and purchase a loan of $400000.  Assuming the same 75% ratio, the property could be valued at $500000, which is an increase of $175000 in values.  

These funds can be saved using various types of 1031 exchange agreement options, such as reverse, and delayed exchanges.