What You Need to Know About 1031 “Like-kind” Exchange

If you’re a first-time investor and you want to know the nuts and bolts of the real estate industry, then I’m about to discuss one of the most interesting topics in real estate investing: the 1031 “like-kind” exchange.

That said, here’s everything you need to know about 1031 “like-kind” exchange.

What is 1031 “like-kind” exchange?

The 1031 “like-kind” exchange was a revenue act that was first allowed in 1921. Under this Act, the investor is able to defer 100% capital tax gains by selling a property, then reinvesting it to a new investment property. This makes 1031 “like-kind” exchange a powerful investment tool.

The Requirements for performing a 1031 “like-kind” exchange.

1. Replacement properties must be “like-kind."

2. Within 45 days the relinquished property that will be sold must be identified.

3. The relinquished property that is about to be sold must be closed within 180 days in accordance with the purchase of the replacement property.

4. The title’s of either the replacement property or relinquished property must perform the exchange by a qualified intermediary.

5. Properties must be at equal or greater than the original price.

6. The exchanged properties must have exactly the same titles.

7. Titles must not contain the same names.

Determining what qualifies and what doesn’t

For the like-kind property exchange, a valid exchange is between one multifamily property to another multifamily property. Thus, a multifamily property is not eligible for exchange with a single-family property.

Occupancy is another factor in 1031 “like-kind” exchange. Under the policy, an occupied property can’t be exchanged.

Personal properties are not within the ruling of the 1031 exchange.

In Conclusion, the 1031 “like-kind” exchange is a great tool for investors in the real estate world. The government gave this great opportunity for investors to invest with deferred taxes, providing investors with shelter for their gains.