1. What are the timelines for completing a 1031 exchange?
From the date of closing on relinquished property, the taxpayer has 45 days to identify a replacement property or combination of properties. Closing on the replacement(s) must occur within 180 days of closing on the relinquished property.
2. What type of property qualifies for a 1031 exchange?
Any type of real property held for investment can be used in a 1031 exchange, including: vacant land, residential rental property, and commercial property. Personal residences, vacation or second homes, stocks, bonds, and properties purchased for immediate resale do not qualify for a tax-deferred exchange.
3. What amount should be re-invested into replacement property to defer all taxes?
Replacement property and its debt amount should be of equal or greater value than relinquished property and its debt amount to defer all taxes.
4. When should an exchange be started?
Anytime before the closing on relinquished property has been completed. It is advisable to include language (approved by an attorney) which shows intent to exchange properties in purchase and sale documents. Sample Language for Close Forms.
5. Does an exchange require finding someone to trade properties with?
It is very rare that an exchange actually happens between two parties who want to trade properties. Working with a realtor and qualified intermediary, it is simple to buy from and sell to unrelated parties.
6. How does the IRS define "like-kind" property?
IRS Section 1031 defines "like-kind" as property held for investment or productive use. This does not include a taxpayer's primary residence or personal leisure place (such as a second home not used for rental income purposes). Any combination of types of "like-kind" properties is allowable in an exchange.
7. How late in the closing process can an exchange be performed?
If title has not passed to the buyer and money has not yet been received, it is still possible to perform an exchange.
8. Can a title company hold money from a sale until replacement property is found?
A title company can hold funds; however, there must be an exchange agreement in place between the taxpayer and a qualified intermediary at the time of the sale. The funds must never fall under the taxpayer's control if an exchange is to be successfully completed.
14. Is it possible for a second home to qualify as an exchange property?
If a taxpayer can prove that a second home is used primarily for investment purposes rather than personal recreation, it is possible to qualify it for exchange under the IRS definition of "like-kind" qualifying properties.
15. Is it possible to use a primary residence in a 1031 Exchange?
No. The property must be held for investment purposes under the IRS definition for "like-kind."
16. What types of personal property are eligible for an exchange?
Royalty interest and gas options, and items such as airplanes, cattle, vehicles, art, and equipment can sometimes be used in 1031 exchanges. Please contact our offices for more information.
A Ten Thirty-One Exchange Corp. 2011 Botulph Road
Suite 200
Santa Fe, NM 87505
505-982-1031 phone
505-982-5211 fax
800-500-1031