1031 exchange

Definition

A tax deferral for real estate swapped into other real estate.

Why It Matters

It reaches a business buyer through the building rather than through the business. A seller who owns the property may want the real estate treated as a like-kind exchange, which changes what they will accept on the building and can leave them indifferent to price there while caring intensely about timing. The deadlines are strict and they are the seller's problem until they become the closing's: a replacement property has to be identified inside forty-five days and closed inside a hundred and eighty.

In numbers: On a deal where $900,000 of a $4M price is the building, the seller's exchange clock rather than the buyer's lender can set the closing date.