When considering a 1031 like-kind exchange, many investors have questions about the process, eligibility requirements, timelines, and potential pitfalls. Commonly asked questions include: What qualifies as a like-kind property? How do the 45-day and 180-day deadlines work? Can I exchange a property for a vacation property or a personal use property? Understanding these key aspects is critical to making the most of a 1031 exchange and avoiding costly mistakes.
Our experienced 1031 exchange intermediary team is here to help you develop the best tax strategy tailored to your investment goals, ensuring you fully leverage the benefits of the exchange. Contact us today to get started!
Your 1031 Like-Kind Exchange Questions Answered
Do I need to include a term in my sale contract stating that I intend to do a 1031 exchange?
In general, there is no harm in including a term in the contract stating an intent to do a 1031 like-kind exchange; however, it is not a requirement of the code or safe harbor regulations.
At what point do I need to set up my exchange?
You will need to have an exchange agreement in place prior to the closing of the sale or purchase of any property which is intended to be part of the exchange.
Who can serve as a qualified intermediary for my 1031 like-kind exchange?
A Qualified Intermediary (QI) is an independent third party who facilitates a Section 1031 like-kind exchange. Not everyone can serve as a Qualified Intermediary, as the IRS has specific requirements to ensure the QI is neutral and independent. The IRS specifies that a Qualified Intermediary cannot be any of the following parties related to the taxpayer within two years prior to the exchange:
- Relatives: Family members, including parents, children, siblings, and spouses, are ineligible.
- Employees or Business Associates: Current employees, business partners, accountants, or legal advisors who have provided services to the taxpayer in the previous two years cannot serve as QIs.
- Agents of the Taxpayer: Real estate agents, attorneys, brokers, and accountants who have represented the taxpayer in the last two years are disqualified.
What are the timing requirements for completing a1031 like-kind exchange?
The taxpayer/exchanger has 45 calendar days to identify potential replacement properties and 180 calendar days (or the due date for the taxpayer’s return, whichever comes first) to complete the exchange. These periods run concurrently and begin counting from the day following closing.
Can I do an exchange into a property which I own an interest in?
Depends. Generally speaking, a taxpayer/exchanger cannot do an exchange into a property they already own.
What is required to completely defer capital gain?
Generally speaking, the taxpayer/exchanger will need to acquire property with equal or greater value and equity to completely defer gain and qualify for a 1031 like-kind exchange. Please consult with your tax advisor for advice regarding your specific tax consequences.
Can I purchase a vacation or recreational property?
To qualify for tax deferral the property in the exchange must be “like-kind” as that term is defined in Section 1031. This limits (but does not prohibit) personal use of the property. Learn more about 1031 exchange for a vacation home or 1031 exchange for rental property.
What is a Delaware Statutory Trust (DST)?
A DST is a legal entity established as a trust under Delaware state law that allows multiple investors to own shares in income-producing real estate assets. It is commonly used in Section 1031 exchanges as a way for investors to defer capital gains taxes by exchanging their interest in real property for shares in a DST, which holds real estate assets.
Contact 1031 Exchange Intermediaries for Answers to All Your Questions
If you’re considering a 1031 like-kind exchange, you may have questions about how the process works, what qualifies as like-kind property, and how to meet the strict timelines involved. Navigating these details on your own can be complex, but with the right guidance, you can ensure you take full advantage of the significant tax benefits.
Our team of expert 1031 exchange intermediaries is ready to provide clear answers to all of your questions, expert advice, and personalized strategies to help you achieve your investment goals. Don’t leave your 1031 exchange to chance—contact us today to get started and develop the best tax strategy for your needs!
