1031 Exchanges
A 1031 Exchange allows you to sell an investment property and reinvest the proceeds in another investment property without paying the various taxes due at sale.
This process is straightforward but very rigid and any deviation from the allowed rules can invalidate the exchange, erasing any tax savings and potential exposing you to IRS penalties.
The core steps involved in the 1031 Exchange
- The seller acquire “like kind” Replacement Property that will be held for investment or used productively in a trade or business
- The purchase price of the replacement property(ies) be of equal or greater value to the relinquished property
- Any cash received at sale be reinvested into the Replacement Property
- Any debt on the Replacement Property must be the same or greater than was on the Relinquished Property
There are two key deadlines that the Exchanger must meet to have a valid exchange
Identification Period
Within 45 calendar days of the transfer of the first Relinquished Property, the Exchanger must identify the Replacement Property to be acquired.
Exchange Period
The Exchanger must receive the Replacement Property within the earlier of 180 calendar days after the date on which the Exchanger transferred the first Relinquished Property, or the due date (including extensions) for the Exchanger’s tax return for the tax year in which the transfer of the first Relinquished Property occurs.
