Simple English definitions for legal terms
Read a random definition: dimpled chad
Delayed exchange: A type of property exchange where the owner gives their property to someone else to sell, and then has 45 days to choose at least one property to exchange it for. The person selling the property is called an intermediary. The intermediary must close on at least one of the chosen properties within 180 days and give any remaining money back to the owner. This type of exchange gives property owners more time and flexibility to exchange property and postpone capital gain taxes.
Delayed exchange is a type of property exchange that allows property owners to postpone paying capital gain taxes. In a delayed exchange, the property owner gives their property to an intermediary who sells it and uses the proceeds to buy a replacement property. This type of exchange is also known as a 1031 exchange.
Unlike a basic 1031 exchange, where the property owner swaps one property for another, a delayed exchange gives the property owner more time and flexibility to find a replacement property. The property owner has 45 days to designate at least one property to exchange the sold property for. The intermediary must then close on at least one of those properties within 180 days and give any remaining money back to the owner.
Let's say that John owns a rental property that he wants to sell. He bought the property for $200,000 and it is now worth $400,000. If John were to sell the property, he would owe capital gain taxes on the $200,000 profit.
Instead of selling the property and paying taxes, John decides to do a delayed exchange. He gives the property to an intermediary who sells it for $400,000. The intermediary then uses the $400,000 to buy a replacement property that John has designated within the 45-day period. John does not owe any capital gain taxes on the sale of the rental property because he has used the proceeds to buy a replacement property.
The delayed exchange allows John to postpone paying taxes and gives him more time to find a replacement property that meets his needs.