Real Estate Seller Resources

10 Important Facts About 1031 Tax Deferred Exchanges.

1. A 1031 tax deferred exchange is the method by which a taxpayer who owns property which has been held for investment or in connection with a trade or business can exchange the property for the kind of property which will be held for investment or in connection with a trade or business.
   
   
2. The primary reason to participate in a 1031 exchange is to defer paying taxes on the capital gains.
   
   
3. Properties do not have to be "similar use" to be "like-kind". The Exchangor can exchange raw land for a condominium or a condominium for a single family residence etc.
   
   
4. The following do not qualify for 1031 treatment: a) real property located outside the United States; b) Exchangor's primary residence; c) property held as inventory; d) and improvements constructed after the Exchangor takes title to the replacement property.
   
   
5. The exchange deadlines are triggered by the closing of the first relinquished property (the property owned by the Exchangor). The Exchangor must identify the replacement property(ies) within 45 days from the date of the first relinquished property closing.
   
   
6. Exchangor must identify under one of the following rules:
   
   - 3 Property Rule - Up to 3 properties can be identified without regard to their fair market value.
   - 200% Rule - If the Exchangor wishes to identify more than 3 properties, he must use the 200% rules which requires him to include the fair market value of all identified properties, add them together, and that total cannot exceed 200% of the fair market value of the relinquished property.
   
   
7. The Exchangor must acquire the replacement property(ies) by the earlier of 180 days from the date of the first relinquished property closing or the due date of filing Exchangor's federal income tax return, together with all extensions.
   
   
8. None of the exchange deadlines are extended if they fall on a Saturday, Sunday or a legal holiday.
   
   
9. Both the relinquished property and replacement property contracts should contain language that the transaction is contemplated to be part of a 1031 exchange and the other party to the transaction agrees to cooperate.
   
   
10. The Exchangor should consult with his or her tax advisor on all matters involving a 1031 exchange.