What is a 1031 Exchange?Real estate investors have used 1031 Exchanges as part of their investment strategy for decades. A 1031 exchange is a swap of one real estate investment property for another
Four Common like-kind 1031 Exchanges
Dated: September 13 2022
The 4 Common like-kind 1031 Exchanges for Investors
There are 4 common like-kind exchanges. Below is a break down of each one and how they differ.
- Delayed Exchange- This is the most commonly used exchange. It occurs when there is a time delay between the sale of the relinquished property and purchase of the replacement property. Once the relinquished property is sold, investors have 45 days to find a replacement property and 180 days to complete the exchange.
- Reverse Exchange- This type of exchange happens when investors acquire replacement property prior to the sale of the relinquished property. In this case, the investor has 45 days to identify the relinquished property and 180 days to complete the exchange. The investor is not permitted to own both properties at the same time, so the IRS offers a safe harbor wherein an Exchange Accomodation Titleholder (EAT) acquires and holds title to one of the properties ( a process called "parked property) under a Qualified Exchange Accomodation Agreement.
- Improvement Exchange- This is also referred to as a construction or a built-to-suit exchange. This type of exchange allows the deferred tax dollars to be used towards improving the existing property or replacement property. The same 45 and 180 day rules apply in indentifying like-kind property, making improvements and completing the exchange.
- Simultaneous Exchange- This type of exchange occurs when the relinquished property is sold at the same time as the replacement property is purchased.
More on the 45 Day Rule:
This rule relates to the designation of a replacement property. Once the sale of your property occurs, the intermediary will receive the funds. The investor cannot receive the funds, even for a short period of time. The investor then has 45 days to identify a replacement or relinquished property. This must be provided in writing with a purchase agreement and legal description of the property as well as a signature from the investor.
Contact us at NextHome Gulf Coast for assistance with a 1031 Exchange Sale/Purchase. Our knowledgeable professional Real Estate Agents are here to guide you every step of the way!
When dealing with a 1031 Exchange is it important that investors consult an investment, tax or legal professional to advise you of the benefits and risks of your specific transaction. Investors can also refer to IRS publications https://www.irs.gov/publications/p544 to learn more about the current list of IRS 1031 Exchange rules and timelines.