What are the Typical 1031 Exchange Rules?
A typical 1031 Like-Kind Exchange allows an investor or business owner to sell an investment property and replace it with another property (passive or active ownership) of equal or greater value within a timeframe of 180 days from the date of close using a qualified intermediary. If all the criteria are met the investor can defer taxes on up to 100% of capital gains created from the sale of the original property. Some form of 1031 Like-Kind exchanges has been around since 1921.
A TYPICAL 1031 EXCHANGE HAS
THREE BASIC STEPS
Exchanger sells the property, known as the relinquished property, and proceeds are escrowed with a Qualified Intermediary (QI).
Qualified Intermediary, Through a written agreement with the investor, transfers funds for the purchase of replacement property
Exchanger receives new property (or DST interest)
TIMELINE FOR 1031 EXCHANGE
Replacement property(ies) must be closed within 180 days of the closing date of the relinquished property.
Exchanger has 45 days to identify
POTENTIAL BENEFITS OF 1031 EXCHANGE
Defers capital gains tax
Opportunity to diversity portfolio
Faciliates estate planning