1031 EXCHANGE SERVICES, INC.

The principals of the firm are Charles J. Ajootian, Esq. (President), and Edward A. Ajootian, CPA (Vice President), who together have 49 years experience in real estate and tax law. Charles Ajootian (Harvard College A.B. 1969 and B. U. School of Law J.D. 1974) has been a member of the bar of the State of Rhode Island for 27 years, and is a frequent lecturer and author on the subject of tax-free exchanges. 1031 Exchange Services, Inc. is the first qualified intermediary company in Rhode Island to become a member of the highly-regarded Federation of Exchange Accommodators.

What is an "Exchange"? 

In the context of modern real estate transactions, an "exchange" is an IRS recognized and approved method to sell appreciated investment real estate and to reinvest the proceeds, without paying capital gains taxes.  The legal authority for exchanging is contained in Section 1031 of the Internal Revenue Code.  The guidelines for the exchange process are contained in Regulations first published by the IRS in 1991 and periodically updated. An exchange under Section 1031 and the Regulations is not a "swap", but is virtually identical to the sale of one property followed by the purchase of replacement property, using an unrelated "Qualified Intermediary" to comply with the guidelines.  The properties involved must be "like-kind", which simply means investment property for investment property.  The closings for the sale and the purchase are usually separate and independent, and can occur several days or several months apart (but not more than 180 days apart).  An exchange under Section 1031 is accomplished in the background of each deal, which allows for  each transaction to proceed with the normal timing and flow.  An experienced exchange Intermediary smoothly coordinates the exchange aspect of both the sale and the purchase, utilizing specific procedures and "safe harbors" which have been "pre-approved" by the IRS.

The Benefits of "Exchanging" are substantial.
An exchange under Section 1031 results in the non-recognition (non-taxability), at both the Federal and State level, of capital gains when investment or business real estate is sold and the proceeds reinvested.  The investment property owner who uses the exchange procedure can use all of his or her sale proceeds to acquire new property, without giving up thousands of dollars in taxes.  An exchange can result in an increased cash flow, or can allow for a diversification or a consolidation of real estate assets, without the drain of capital gain taxes.  Section 1031 is truly one of the cornerstones for the building of wealth in real estate, and has been appropriately referred to as "the last remaining tax shelter for investment real estate".

Example: Taxpayers A & B are both selling investment property for $180,000. The adjusted basis is $80,000 for each one. Both A & B are acquiring replacement property costing $200,000. A doesn't use Sec. 1031, but B does:

Aren't Exchanges complicated and costly?

Neither. Following all of the legal guidelines, 1031 Exchange Services, Inc. operates in the background of both the sale and the acquisition, so that the flow of each transaction is not interrupted or slowed down. Exchangors who employ us typically save at least five, ten or more than twenty times the exchange cost in capital gains taxes deferred.

How do I get started?

First, list your rental, business or investment property with your real estate agent. Then, after signing a sales agreement (no special language required), but before your closing, call 1031 Exchange Services, Inc. to structure your exchange.