We are frequently contacted by investors and advisors who need a refresher on 1031 exchanges. Here is a quick overview:
What is a 1031 exchange?
A 1031 exchange is a strategy that allows sellers of business use or investment property to defer the gain when selling and subsequently acquiring another business use or investment property from someone else within 180-days. The exchange must be set up prior to (or at) closing of the relinquished property.
Do any properties qualify?
Any type of real estate can be exchanged provided it is used for business or investment. It does not work on a primary residence or a flip. Vacation homes may qualify under certain circumstances and usually with some planning.
What are the time periods of a 1031 exchange?
The 45-Day Identification Period requires you to identify replacement property(ies) and the 180-Day Exchange Period requires you to acquire your replacement property(ies). The two time periods begin the day the old property is conveyed to the buyer, are calendar days and run concurrently. Determine your 45 and 180-Day deadlines.
How do you maximize the deferral?
You must acquire a replacement property with equal or greater value and equity than the old property. A trade down in value or equity could work but the amount of the trade down is taxable. Our 1031 calculator can help get an estimate of how an exchange will work for you.
Can I take title to the new property in a different name?
Title to the replacement property must be vested with the same Taxpayer or owner that held title to the relinquished property. If the same owner doesn’t buy the replacement property, how can it all be reported on the same tax return?
When should I consider doing a 1031 exchange?
Whenever selling a property other than your primary residence, you should at least discuss whether or not your property would qualify for 1031 tax-deferral treatment and the potential tax benefits.
When do I need to set up my 1031 exchange?
The exchange must be set-up before title of the relinquished property is transferred to the Buyer. 1031 CORP. can set it up as late as at the closing table but after closing, it is too late. Get started!
How do I set up my 1031 exchange?
Just contact 1031 CORP. We’ll need the signed Agreement of Sale, closing information and contact information for your client. It is that simple.