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GITDEC | Rules for a 1031 exchange |
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Q and A: FAQ's Glossary 1031 Exchange Basics: How and Why 1031: 1031 Documents: Samples: Corporate Information: Ask us about 1031 Company Information Webmaster |
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Since the vast majority of exchanges transacted currently are of the delayed variety let
us look at some rules which you should consider important. Two basic rules must be met to
fully defer taxes on the gain realized from the sale of the relinquished property:
Property that qualifies for exchange under 1031 must be "like kind", which is defined in the Treasury Regulations as follows:
Therefore, not only is rental or other income property qualified, so is unimproved property which has been held as an investment. That unimproved property can be exchanged for improved property of any type, or vice versa. Also, one property may be exchanged for several, or vice versa. This means that almost any property that is not a personal residence or second home is eligible for exchange under Section 1031. Even the vacation home that is used for that purpose part of the year, and is rented part of the year, is considered "mixed use" property and may be exchanged under 1031 for other mixed use property. Time Constraints The Exchangor has a maximum of 180 days from the close of escrow on the relinquished property or the due date of that year's tax return, whichever occurs first, to acquire the replacement property. This is called the Acquisition Period. The first 45 days of that period is called the Identification Period. During the 45 days, the exchangor must identify the property which will be used for replacement. The identification must be in writing, signed by the exchangor and, received by the intermediary or other qualified party, faxed, postmarked or otherwise identifiably transmitted (such as Federal Express or other dated courier service). This must all occur within the 45 day period. Failure to accomplish this identification will cause the exchange to fail. |
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