About 1031 Exchanges
Like-kind exchanges — when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind.”
That’s the IRS definition. 1031’s have been around for a long time. Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality.
Why a 1031?
The reasons to participate in a 1031 exchange are numerous. There are specific timelines and procedures that must be followed to take advantage of the benefits of this program.
- Seller should have the contract specify that the sale may be structured as a 1031 exchange.
- Seller cannot receive or control the net sale proceeds – the proceeds must be deposited in a qualified escrow.
- Replacement property must be like-kind to the relinquished property.
- The replacement property must be identified within 45 days from the sale of the original property.
- The replacement property must be acquired within 180 days from the sale of the original property.
- In a reverse exchange the taxpayer acquires the replacement property prior to disposing of the relinquished property.
- Generally, the cash invested in the replacement property must be equal to or greater than the cash received from the sale of the relinquished property.
- The debt placed or assumed on the replacement property must be equal to or greater than the debt relieved with regard to the relinquished property.