THE IRS HAS SIX KEY RULES FOR A 1031 EXCHANGE
WE'LL MAKE SURE YOU UNDERSTAND THEM
THE IRS HAS SIX RULES OF A 1031 EXCHANGE
Real Property Use Held FOr Investment
Both your relinquished and replacement property must be held for investment. Therefore, it must be income producing, such as a rental, to qualify for a 1031 exchange.
The IRS mandates that you use a QI to hold your cash proceeds from the sale of your old property. The QI also prepares the legal documents for your exchange. Specifically, your QI must be an independent third party. For example, they cannot be a friend, employee, broker, or even your CPA or Attorney. Your QI will then forward those cash proceeds to the closing agent of the new property when you purchase in your 1031 exchange.
Proper Title Holding
You must purchase and hold title to the new property exactly as you held title to the old. In other words, whoever the taxpayer was that sold the old property must be the same taxpayer to buy the new one.
45-Day Replacement Property Identification
You have 45 calendar days from the closing on the sale of your old relinquished property to identify replacements. You can list up to 3 replacement properties on your 45 day form without running into limitations.
180-Day Replacement Property Purchase
From the date of closing on the sale of the old relinquished property, you will have 180 days to close, or get into title, on a new replacement property. The new property you purchase must be listed on your 45-day form.
For your 1031 exchange to defer all of your capital gains tax, you must reinvest all the cash proceeds from the sale to buy a new property equal or higher in value than the one you sold.