10 Things To Know About 1031 Exchanges - Part 2

In a previous post, we introduced you to some general concepts about 1031 exchanges. These popular transactions allow investors to defer capital gains tax when swapping business or investment property (real or personal). We also listed a few of the key things you need to know if you are considering a 1031 exchange.

Today, we offer you several more key basics of this appealing strategy for building your investment portfolio.

All Exchanges Don’t Happen Simultaneously

One of the key benefits is that you can sell your current property and have up to six months to close on the acquisition of the “like-kind” replacement property. This is known as a delayed exchange. When you want to complete such an exchange, you will need the help of a qualified intermediary – the person who will hold the sale proceeds from the relinquished property and then “purchase” the replacement property for you.

Timing Matters

The IRS is very strict when it comes to 1031 exchanges. While they allow you to defer taxes, they also hold you to critical deadlines in order to do so. The first is known as the “45 Day Rule.” This rule requires you to identify your replacement property within 45 days of the sale of your relinquished property. Failing to do so will negate the exchange and taxes will be due.

You Can Designate Multiple Replacement Properties

To make it easier to complete a successful exchange, the IRS permits you to name more than one replacement property. Of course, this is also subject to strict limitations. You can name up to three so long as you close on one of them within the requisite time limitations. Alternatively, you can nominate more than three if they adhere to a valuation requirement (the 200% rule).

Timing Matters (Again!)

In keeping with their strict requirements, the IRS also requires you to close on your replacement property within 180 days of the sale of your relinquished property. The clock starts ticking on the day you sell and runs concurrently with the 45-Day-Rule.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.