Learn 1031 Exchange Rules & Regulations

  1. Exchanges must be between “like-kind” properties for investment or business purposes.
  2. Exchangers must identify and receive replacement property within 45 days of transferring the relinquished property.
  3. Exchanger must close on the replacement property within 180 days of transferring the relinquished property.
  4. Exchangers must receive the replacement property before transferring any proceeds from the relinquished property.
  5. Exchangers must use an intermediary to facilitate the exchange.
  6. Exchangers must recognize any gain on the exchange for tax purposes.
  7. Exchanger must reinvest the entire net proceeds from the relinquished property into the replacement property.
  8. Exchangers must not receive any cash or other property in exchange.
  9. Exchangers must file Form 8824 to report the exchange.

Top 5 Informative 1031 Exchange FAQs

What Is Considered Like Kind Property In A 1031 Exchange?

Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved.

What is A 1031 Exchange Like Kind Property Example?

An apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States.

Can You Do A 1031 Exchange On A Primary Residence?

The IRS doesn’t allow a 1031 exchange on a primary home but the IRS does exclude the first $250,000 of gain from the sale of your primary home from your income and avoid paying taxes on it if you meet certain conditions. Another option is turning the primary home into a rental property and then doing a 1031 exchange down the road.

How Long Do You Have To Do A 1031 Exchange?

The replacement investment property for the 1031 exchange must be identified in writing within 45 days after the property being given up is sold. The new property must be transferred within 180 days, or by the due date of the tax return including extensions, whichever is earlier.

Can An LLC Do A 1031 Exchange?

An LLC can do a 1031 exchange but only on the entity level, meaning the entire partnership sells a property and the entire partnership stays 100% intact, and purchases a replacement property. If even one member changes in the LLC, then a 1031 exchange isn’t possible.

Information Source: IRS