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Starker Exchange

A Starker Exchange, also known as a delayed exchange, is a part of the broader 1031 exchange industry, which deals with the tax-deferred exchange of investment and business properties. Section 1031 of the Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties.

In a Starker Exchange, the process is facilitated through an intermediary due to a delay between the sale of the relinquished property and the acquisition of the replacement property. Here’s a general overview of how it works:

  1. Sale of Relinquished Property: The investor sells the original investment or business property. Instead of receiving the sales proceeds directly, they are held by a qualified intermediary.
  2. Identification Period: The investor has 45 days from the sale of the relinquished property to identify potential replacement properties. They can identify more than one property, but there are specific rules regarding the number and value of the identified properties.
  3. Purchase of Replacement Property: The investor has a total of 180 days from the sale of the relinquished property, or until the due date of the investor’s tax return for that year (including extensions), whichever comes first, to complete the purchase of the replacement property using the funds held by the intermediary.
  4. Completion of the Exchange: Upon acquisition of the replacement property, the Starker Exchange is completed, and the investor can defer the capital gains tax on the sale of the relinquished property.

It’s essential to note that specific rules and regulations govern the process, and the properties involved must meet the IRS’s “like-kind” criteria. Additionally, having a qualified intermediary is a crucial aspect of a Starker Exchange to ensure that the investor doesn’t take actual or constructive receipt of the funds between the sale and purchase, which could disqualify the exchange for tax-deferred treatment.