Dec 04, 2022

Section 1031 Tax-Deferred Exchanges of Farms, Ranches & Investment Real Estate with Capital Square

By Kaleigh Collett - USEA Staff

Are you on the hunt for your next farm, ranch or investment property? USEA sponsor, Capital Square, has all of the information that you need to know about the tax advantages for investing in this type of property. Capital Square is an investor-centric firm and leader among tax-advantaged real estate investment sponsors with more than $2 billion in equity raised. Owners of farms, ranches and investment real estate enjoy several tax advantages, include the rules governing Section 1031 that defer taxable gains on the sale of real estate.

Capital Square’s founder and CEO, Louis J. Rogers, is an amateur eventer himself, campaigning his Irish Sport Horses, Russel and Leo, throughout the mid-Atlantic during his free time. To help USEA members better understand Section 1031 tax-deferred exchanges, Louis sat down to answer several questions on the topic.

Q: What is a Section 1031 Exchange?

A: Section 1031 is a part of the Internal Revenue Code and is commonly referred to as a “like-kind” or “tax-deferred” exchange. Section 1031 defers taxes that otherwise would be due on the sale of real estate.

Q: What qualifies under Section 1031?

A: Only real property qualifies (personal property no longer qualifies). Real property can be improved or unimproved. This means that taxpayers may exchange unimproved real estate (land) for improved real estate, and vice versa.

Q: What is the “like-kind” requirement?

A: The taxpayer’s existing property is referred to as the “relinquished property” and the new property is referred to as the “replacement property.” Section 1031 provides that the relinquished property and the replacement property must be of “like-kind.” Generally, all real property is “like-kind” to all other real property. Real property and personal property are not like-kind.

Q: Is there a holding requirement?

A: Yes. The relinquished property and the replacement property must both be held for investment or use in a business. Property can be either held for production of income, held for appreciation, or used in a business. Qualifying property includes most farms, ranches, and investment property but excludes principal residences and personal use property.

Q: How does a Section 1031 exchange work?

A: The starting point is the owner of real estate, for example, a farm, ranch or investment property. When the time comes to sell the property, taxable gain generally will be recognized on the sale. However, Section 1031 provides an exception to the general rule where the taxable gain is deferred. The owner must acquire a qualifying replacement property typically of equal (or greater) value. The owner may acquire a “whole property” or a fractional DST interest in a property.

Q: How long is the gain deferred?

A: The gain that would have been recognized in a taxable sale is deferred until the replacement property is sold in a taxable transaction. The replacement property may be exchanged repeatedly, creating the potential for nearly perpetual tax deferral.

Q: What is the first step in an exchange?

A: The owner should engage a qualified intermediary (QI) to prepare an exchange agreement and hold the sales proceeds in an exchange escrow account. The IRS provides a “safe harbor” for using a QI. The QI is typically an affiliate of a bank or title company or a stand-alone firm in the business of preparing exchange documents and holding funds for an exchange. The QI cannot be the taxpayer, a related party or a disqualified person.

Q: Are there time restrictions?

A: Yes, there are strict time restrictions. The QI must be in place and receive the net proceeds by the time that the relinquished property is sold. Also, if the owner would like more time, the owner may “identify” replacement property in a written notice sent to the QI within 45 days of the initial closing. By identifying replacement property, the owner will have up to 180 days from the relinquished property closing to acquire the identified replacement property or properties. Note that if all replacement property is acquired within 45 days, there will be no reason to identify because the exchange will be complete.

Q: How do you identify and what is the identification period?

A: You identify in a written notice sent to the QI by midnight of the 45th day following the relinquished property closing. The owner may acquire one, more or all the identified properties; properties not identified may not be acquired in the exchange.

Q: What is the closing period?

A: The owner must close on all replacement property or properties within 180 days of the relinquished property closing. Technically, Section 1031 mandates closing by the earlier of (i) 180 days of the relinquished property closing or (ii) the due date of the owner’s tax return (with extensions). Most taxpayers are able to file an automatic extension, which means that owners generally have the full 180 days to complete their exchange.

Q: What are the benefits of a Section 1031 exchange?

A: There are many benefits:

  • Tax deferral is the primary benefit.
  • Build family wealth over time with multiple exchanges.
  • Exchange non-income producing property (for example, land) for income-producing property to generate cash flow.
  • Exchange actively managed property (for example, a rental house) for passive property (for example, a DST or net lease).
  • Acquire higher quality DST replacement property than the taxpayer could afford on their own.
  • Diversify to reduce risk by acquiring several DST replacement properties.
  • Potential tax forgiveness for heirs with a step-up in basis upon death.

If you are interested in learning more about Section 1031 tax-deferred exchanges, consider contacting Capital Square! To learn more about the company and contact a representative, visit or call their offices at 877-626-1031. Capital Square has locations in Metro-Richmond, VA, Washington, DC and Newport Beach, CA. Louis Rogers and his team would be happy to assist you with your next real estate investment!

May 27, 2023 Eventing News

Auburn Leads, USC Aiken in the Hunt After Cross-Country at the 2023 USEA Intercollegiate Eventing Championship

Chants of “War Eagle” were heard from end to end of the White Oak cross-country course as the overnight leaders and defending champions from Auburn University tore between the red and white flags Saturday to remain atop the leaderboard of the 2023 Intercollegiate Eventing Championship at the Tryon International Equestrian Center (TIEC).

May 27, 2023 News

Horse Owners Urged to Participate in Economic Impact Study for the Equine Industry

The last three years have been a time of great change throughout the country for homes, businesses and industries. Rising costs of living, shrinking of assistance and changes in demographics have affected so much of our world, and that includes the equine industry. However, not all of the changes are easy to identify. This is why the American Horse Council (AHC), together with the U.S. Equestrian Federation, has kicked off what could be one of the biggest studies in more than 50 years with the 2023 National Economic Impact Study (EIS) for the equine industry.

May 26, 2023 Intercollegiate

Tigers on Top: Auburn University Leads 2023 USEA Intercollegiate Eventing Championship After Dressage

Twenty-three teams from 13 colleges and universities have traveled far and wide for the seventh annual USEA Intercollegiate Eventing Championship held at the Tryon International Equestrian Center (TIEC) in Mill Spring, North Carolina.

May 26, 2023 About Us

Meet the USEA Staff: Programs, Partnerships, & Marketing

If you have been involved at a higher level with the USEA, you probably recognize the names of the two ladies that spearhead all of the efforts of the USEA’s Programs, Partnerships, and Marketing department: Kate Lokey, Director of Programs and Marketing, and Kaleigh Collett, Marketing Coordinator, but a new member of this team has also joined the USEA staff in Heather Johnson, Programs and Inventory Assistant. If you have considered advertising with the USEA or are involved in the USEA’s Young Event Horse, Emerging Athletes U21, New Event Horse, Adult Riders, Young Riders, Classic Series, or Grooms programs, you probably have or most likely will interact with one of these staff members.

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