Deferred Exchange

A deferred exchange, also known as a "delayed exchange" or "Starker exchange," is a type of tax-deferred exchange under section 1031 of the Internal Revenue Code.

In a deferred exchange, the taxpayer (referred to as the "exchanger") sells their relinquished property and then uses the proceeds to purchase a replacement property within a certain timeframe. The key feature of a deferred exchange is that the exchanger does not receive the proceeds from the sale of the relinquished property directly, but instead, they are held in a qualified intermediary's escrow account until the replacement property is purchased.

The deferred exchange allows the exchanger to defer paying capital gains taxes and other taxes that would normally be due upon the sale of the relinquished property. By reinvesting the proceeds into a replacement property, the exchanger is able to continue deferring taxes until they eventually sell the replacement property, at which point they will owe taxes on the entire amount of accumulated gain from both the relinquished and replacement properties.

To qualify for a deferred exchange, the exchanger must meet certain requirements, including identifying a replacement property within 45 days of the sale of the relinquished property and completing the exchange within 180 days.