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1031 Exchange Information
*The following is for informational purposes. We highly recommend that you consult with a tax professional*
So what is 1031? Generally stated, a 1031 exchange (also called a like-kind exchange or a Starker) is an exchange of one investment asset property for another. Although most exchanges are taxable as sales, if you come within 1031, you’ll either have no tax or limited tax due at the time of the exchange.
Here is the IRS definition: Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), a taxpayer may defer recognition of capital gains and related Federal income tax liability on the exchange of certain types of property. In 1979, this treatment was expanded by the courts to include non-simultaneous sale and purchase of real estate, a process sometimes called a Starker exchange.
Requirements for IRC Section 1031 Exchanges
TIMELINE REQUIREMENTS
Measured from when the relinquished property closes, the Exchangor has 45 days to nominate (identify) potential replacement properties and 180 days to acquire the replacement property. The exchange is completed in 180 days, not 45 days plus 180 days.
IDENTIFICATION RULES
As an Exchangor, you are required to provide in writing an “unambiguous description” of the potential replacement property prior to midnight on the 45th day (after the close of the first relinquished property). A legal description or property address will suffice. If you wish to identify or purchase multiple properties, you must follow one of the following guidelines:
- Identify up to three properties of any value with the intent of purchasing at least one.
- Identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property.
- Identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired.
- A submitted purchase agreement is considered a sufficient identification.
- Any properties purchased and closed within the 45-day time period qualifies as an identification.
Basic Timeline:
Day 1: You have closed on the sale of your investment property.
Day 45: Deadline for identifying up to three like-kind properties for purchase.
Day 180: Deadline to complete the purchase of the new property(s) in order to qualify for a 1031 Exchange.
You have six months from the day you closed escrow on the sale of your original property to successfully meet the 1031 Exchange requirement for the IRS.
Delaware Statutory Trust Info (preferred vendors):
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