1031 Exchange: Five Things You Should Know
January 6, 2017
In our previous posts, we’ve walked you through the basic steps of a 1031 exchange. As may know by now, Internal Revenue Code Section 1031, or as it is more commonly known, the 1031 Exchange, allows the exchanger to defer all immediate taxable liability indefinitely, as they sell one investment property for another within a defined period of time and by meeting certain federally regulated guidelines. In this post we’ll talk through five fast facts summing up a 1031 exchange.
Related Post: Executing a 1031 Exchange
1. Your Residential Property Does Not Count
The base requirement for an exchanger identifying property is that the property is a “like-kind investment.” That term can be broad and encompass a wide variety of property, including in some cases rental property. However, according the IRS, your primary residence, vacation homes and property specifically bought for resale do not qualify.
Related post: Like-Kind Property for a 1031 Exchange
2. You’re on a Deadline
Once the exchanger relinquishes the property and the QI receives funds, the clock begins to tick. The exchanger has 45 days to identify a replacement property. From the start of the initial 45-day window the exchanger has a total of 180 days to actually purchase the property. Something to remember: The Federal Government does not exclude weekends or holidays in the exchange period.
3. It Takes a Team
You can’t make this exchange alone. Before closing on your relinquished property during a 1031 exchange, you’ll need to find a Qualified Intermediary (QI). The QI, also often referred to as the Accommodator or Facilitator, will be the person to take receipt of the exchange funds at closing. In terms of finding property to identify, a Registered Representative will be able to assist you. Finally, it is important that you consult with your tax advisor to ensure your 1031 exchange is within IRS guidelines established.
4. You will be Taxed on Cash Received
It is not necessary for exchange purposes for the values to be an exact match, but any funds remaining whether in the form of cash or debt from the property sold will be taxed. The excess proceeds, commonly known as “Boot,” are fully taxable back to the exchanger’s original cost basis. It’s important that you talk to your financial or tax advisor prior to leaving any money on the table in a 1031 exchange.
Related post: Value Requirements
5. You Have Options
When it comes to a 1031 exchange you have options in terms of property. The opportunity to diversify your portfolio is available. Medical Office Buildings, Industrial Properties, Self-Storage, Student Housing, Multifamily Properties, Retail Properties and Office space are investment examples we commonly see on 1031rps.com
If you would like to speak to someone to discuss your personal needs and portfolio, give us a call at (844) 4RPS – 1031. Sign up for a free account to view our current inventory.
Please note: 1031RPS.com and its associated personnel are not tax professionals, and they recommend investors consult with their tax advisor to ensure their 1031 Exchange is within the IRS guidelines established.