On this Thankful Thursday, we are grateful for the opportunity to buy and sell more than one property in a 1031 tax-deferred exchange. The majority of 1031 exchange transactions involve the sale of one relinquished property followed by the purchase of one replacement property. Fortunately, Exchangers have the option of including more properties to accomplish their objectives.
1031 CORP. has seen real property exchange transactions that include a significant number of properties. One involved the sale of 34 condos to acquire one replacement property. Another involved the sale of farmland for 55 single home rental properties.
Our course, there are some things you need to keep in mind when structuring such transactions:
- Timing is everything. Regardless of how many properties you wish to sell or purchase, you must still follow the 45-Day Identification Period and 80-Day Exchange Period rules.
- The time periods begin with the sale of the first relinquished property.
- When identifying replacement properties, you must follow the 3 Property Rule (can identify up to three replacement properties regardless of their combined fair market value) and the 200% Rule (if identifying four or more replacement properties, all four or more cannot equal more than twice or 200% the value of all relinquished property). Anything actually acquired within the 45-Day Identification Period does not have to be formally identified but it must be counted towards the 3 Property Rule and 200% Rule.
- There is also another rule, the 95% Value Rule, that is catchall if you break the 3 Property Rule and the 200% Rule. The exchange will work provided you acquire 95% of what was identified.
- You must transfer all relinquished properties before you can take title to any replacement property.
- You must be sure to reinvest in replacement property of equal or greater value and equity.
- If purchasing more than one property and leveraging your exchange funds, careful planning is needed to make sure all equity is reinvested especially if there is concern that one of the replacement properties may not close within the 180-Day Exchange Period.
- If selling multiple replacement properties, it is always best to push the closing date of the first property sold back as far as you can to avoid triggering the time periods.
Note that exchanges involving tangible and intangible personal property often include multiple relinquished and replacement properties.
The Exchange Team at 1031 CORP. has the experience to make even the most complicated transactions easy for our clients. Contact us to get started.
