1031 Exchange Quick Resource Guide

1031 Exchange Structures

There are numerous ways to structure a 1031 Exchange transaction.  The best structure will depend upon your specific circumstances.  You are always welcome to contact Exeter 1031 Exchange Services, LLC to work with your advisors in determining which 1031 Exchange structure is best suited for you.  

Simultaneous or Concurrent 1031 Exchanges

The relinquished ("sale") property and the replacement ("purchase") property close (settle) on the same day when structuring a Simultaneous/Concurrent 1031 Exchange structure.  This was once the most common structure prior to the IRS issuing the Delayed Exchange Regulations in 1991. 

Forward or Delayed 1031 Exchanges ("Regular")

The sale of your relinquished ("sale") property closes first and then the acquisition of your replacement ("purchase") property closes later within the required 45 and 180 calendar day deadlines in a Forward or Delayed 1031 Exchange (also referred to as a "Regular" or "Starker" Exchange).  This is the most common structure for structuring 1031 Exchange transactions today. 

Reverse 1031 Exchanges

You can close on the purchase of your replacement property before you close on the sale of your relinquished property when you structure a Reverse 1031 Exchange.  The Reverse 1031 Exchange allows you to acquire your target replacement property before you market (and close on) your existing relinquished property.  The Reverse 1031 Exchange has become much more common recently due to the market conditions.

Improvement (Build-To-Suit or Construction) 1031 Exchanges 

Your net proceeds from the sale of your relinquished property can be used both to purchase replacement property and also used to (assuming there are funds left over/available) construct or make capital improvements to the replacement property when an Improvement 1031 Exchange is structured. 

Personal Property 1031 Exchanges (Non-Real Estate) 

Personal property (i.e., non-real estate) also qualifies for 1031 Exchange treatment as long as the personal property is held for rental, investment or use in a business.  Examples of personal property held for rental, investment of business use can include aircraft, trucks, boats, franchise agreements, equipment, livestock, artwork, and much, much more.  The majority of advisors and taxpayers are not aware that personal property qualifies for 1031 Exchange treatment.   

Foreign Property 1031 Exchanges

U.S. taxpayers that own rental, investment or business use property in a foreign country can sell the property and structure a 1031 Exchange by reinvesting in other foreign rental, investment or business use property.  Foreign property can only be exchanged with other foreign property in a Foreign Property 1031 Exchange.  U.S. property can not be exchanged for foreign property and foreign property can not be exchanged with U.S. property.

1031 Exchange Qualifications 

Qualified Intermediary or Accommodator  

A Qualified Intermediary ("QI"), often referred to as an Accommodator, must be chosen and assigned into your relinquished property (sale) transaction and your replacement property (purchase) transaction before either of the transactions close to qualify for tax-deferred exchange treatment under a 1031 Exchange.  Sale transactions that close before a 1031 Exchange has been set-up can not be restructured as a 1031 Exchange.

Qualified Use Property Requirement  

The relinquished property and the replacement property involved in a 1031 Exchange transaction must be held for rental, investment or business use to qualify for 1031 Exchange treatment.  The taxpayer must have the intent to hold the properties for investment purposes.  Properties held for sale (e.g., rehab, fix, flip) will not qualify for 1031 Exchange treatment.  The amount of time does not determine whether the property qualifies for rental or investment purposes.  It is the intent of the taxpayer that matters.  The length of time they hold the property is only part of the equation.

Like Kind Property Requirement 

The replacement property acquired in your 1031 Exchange must be "like-kind" to the relinquished (sold) property.  ANY real property is like-kind to ANY other real property as long as they are both held for rental or investment or used in your business.  Like-kind property does NOT mean condo for condo or apartment for apartment. 

Reinvestment Requirements

Exchange Equal or Up In Value

The taxpayer must exchange equal or up in value based on the net sales price and total purchase price so that the total purchase price of your replacement properties is equal to or greater than the net sales price of your relinquished properties.  It is important to note that it has nothing to do with your equity or property, but your net sale price. 

Reinvest 100% of Net Proceeds

You must reinvest all of your net proceeds or cash proceeds generated by the sale of the relinquished property into your replacement property acquired.  Cash can be pulled out, but it will always be taxable. 

Obtain Equal or Greater Debt

The difference between the total purchase price(s) and the net proceeds reinvested in the replacement properties will always be the correct amount of new debt ("mortgage") to be placed on the replacement properties purchased, unless you wish to put out-of-pocket cash into the transaction in order to obtain less debt.

1031 Exchange Deadlines

45 calendar days to identify potential like-kind replacement property.
180 calendar days to complete the 1031 Exchange. 

1031 Exchange Identification Rules

3 Property Rule

You can identify up to three (3) potential replacement properties, without regard to their fair market value.  The limit under the three (3) property rule is on the number of properties and not on the value. 

200% of FMV Rule 

You can identify any number of potential replacement properties, but the total fair market value identified cannot exceed 200% of the net sale price of the relinquished (sale) properties.  The limit under the 200% rule is on the fair market value of the properties and not the quantity.

95% Exception

You can identify as many replacement properties as you wish, but you must actually acquire and close on 95% of the fair market value identified.  If you acquire less than 95% of the value identified your 1031 Exchange will not qualify for tax-deferred exchange treatment.