Is there a limitations on the number of properties or sellers you can have in a single 1031 exchange?

Question

I am very new in this area of real estate.  Any help would be appreciated.

Dave Toelkes · Answer

Frank Luongo,

Do you mind sharing details?

Frank Luongo · Answer

Bill Exeter thank you for you response, you just saved me capital gains tax on $50K!

Bill Exeter · Answer

Hi Cesar,

Yes, it would qualify.  Here is how you would break it down:

Qualified Use

The properties that you sell and subsequently acquire must be held for rental, investment or use in a business.  If so, then they qualify for tax-deferred exchange treatment under Section 1031.  Properties held for sale, such as flips, do not qualify as held for rental or investment, but rather held for sale (i.e. inventory in your business).

Like-Kind

The definition of like-kind properties is very broad when it comes to exchanging real estate.  Any kind of real estate is like-kind as long as it meets the Qualified Use test described above.

Reinvestment Requirement

The property(ies) that you acquire must have a total purchase cost equal to, or greater than, the net sales price of the property(ies) that you sold.  In other words, you must trade equal or up in value based on your net sales price.  You must also reinvest all of your cash equity that comes out of your sale.

Does that help?

Frank Luongo · Answer

Hi, I would like to know if the following scenario, which is related to this forum post,  would qualify for 1031 Exchange?  If I sold a 4 bed, 3 bath, 2,637 Sq. Ft. home (located in an H.O.A.) and attempted to purchase 2-4 smaller condominium units (1-1's, 2-1', and or 2-2's) of 1000 Sq. Ft. or less, would this transaction qualify for a  single 1031 tax-deferred exchange?  I am having trouble defining the "like-kind" qualification as part of the 1031 exchange.

Steven Hamilton II · Answer

Bill Exeter and Dave T nailed it.

Ned Carey, exactly, there is no limit; however, you have to look at a practicality standpoint.   As a seller selling many properties it can make sense to condense into a larger property.

Dave Toelkes · Answer

I agree with Bill Exeter that there is no limit on the number of sellers or the number of properties that can participate in a single 1031 exchange.  There is, however, a 3 property rule, a 200% rule, and a 95% rule that limit either the number or the total value of the replacement properties that you can identify as replacement properties.

These rules, in the aggregate, limit the number of properties that you could acquire as the replacement property in a single tax-deferred exchange to the number of properties that you can afford to buy.

Bill Exeter · Answer

Hi Cesar, and welcome to BP.

Cesar Villarreal is right on the money.

There are no limits as to the number of properties that you can sell and/or acquire through a 1031 Exchange.  However, there are practical issues involved such as identifying the properties and then subsequently acquiring them within the 45 calendar day identification period and the 180 calendar day exchange period.  You can also combined various 1031 Exchange structures such as a Forward 1031 Exchange with a Reverse 1031 Exchange or vice versa in order to accomplish various transactions.

Ned Carey · Answer

Cesar Villarreal I see this is your fist post so welcome to BP.

I know you can do multiple properties in a 1031 exchange but I don't know specifically if there is a limit. I doubt it; but there is a practical limit due to the restrictions of how they are handled. The more properties the more complicated and is just becomes, and it is just less practical to do.

However why do you care? If you are new I presume you don't have multiple properties to exchange. This is a question about something that may never happen.

In any business including real estate it is good to plan and think ahead but it is more important to focus on the basics and what you can do now.  Good luck - Ned