It almost sounds too good to be true: Sell your business or investment real property today and you can defer paying the capital gains taxes. You'll have more money to reinvest now. Commercial, investment, rental, retail, office and many other kinds of properties qualify, so you can take advantage of the many real estate bargains currently available.

All you need is to know is the basics of 1031 Exchange.

What is the purpose of a 1031 Exchange?

A 1031 Exchange defers capital gains taxes on the sale of your business or investment property. That gives you more money to invest in business or investment property now while prices are more attractive.

What kind of property is eligible for a 1031 Exchange?

Almost any kind of real property qualifies as long as you use it for business or investment. To defer all capital gains taxes, the replacement property must be as valuable as the one sold.

How does a 1031 Exchange work?

After you sell your property, you have 180 days to use the proceeds to replace it. You don't pay the capital gains tax until you sell the replacement property. The catch is you cannot possess or control the sale proceeds at any time between the sale of your first property and the purchase of the replacement. A qualified intermediary holds the proceeds for you.

Can I use a 1031 Exchange for a personal residence?

No. Your home may be your most important investment, but the Internal Revenue Service doesn't consider private residences investment property.

How do I complete a 1031 Exchange?

Your first step is to find an experienced qualified intermediary. Talk with your local banker, financial professional or accountant who can guide you to a good qualified intermediary source.

1. Enter into an exchange agreement with a qualified intermediary.

2. Sell a business or investment property.

3. Deposit the proceeds in an account administered by the qualified intermediary. If you receive any of the money, you'll have to pay taxes on it.

4. Within 45 days, find one or more properties you are interested in buying.

5. Within 180 days, buy the replacement property with the funds in the account.

What should I look for in a qualified intermediary service?

An experienced qualified intermediary will handle the details and make a complicated transaction easy for you.

1. Local service - You'll need easy access to your funds when you buy the replacement property. Choose a service with convenient offices and a real understanding of your financial needs.

2. Affordability - A flat fee should include account set up, depository services, incoming and outgoing wire transfers and any paperwork.

3. Maximize your investment - Hold your funds in individual high-yield money market accounts and make sure the service pays you 100 percent of all interest when the exchange is complete.

Van Canada is the Riverside Bank President in Volusia County. For 1031 Exchange questions, call Riverside Bank's line for 1031 exchange services at (866) 277-7339.