Deferred 1031 Exchanges
This is the most common type of 1031 exchange. In this case, the investor closes on the relinquished property. The investor must then identify a “like kind property” withing a 45 day identification period. The investor must cloes on one of those identified properties withing 180 days of the closing date of the relenquished property. TheThe identified property(s) must meet these criteria:
Three Property Rule: An investor identifies up to three different properties as potential purchases within the 45-day identification period.
200% Rule: An investor may identify an unlimited number of replacement properties, as long as the total fair market value of all properties does not exceed 200% of the value of the relinquished property.
95% Rule: An investor may identify as many exchange properties as they want, as long as they receive at least 95% of the value of all identified replacement properties before the end of the exchange period.
The investor MUST use a Qualified Intermediartry to facilitate this type of 1031 exchange transaction. If the investor takes posession of any of the relenquished proceeds, it could eliminate the tax deferrment benefit. Investors should contact their tax attorney to insure a 1031 exchange meets their investment objectives.
Simultaneous 1031 Exchange
The investor closes on the relinquished property, then closes on the replacement property immediately thereafter—usually within one day. An investor may use a Qualified Intermediary to handle the funds, but they’re not required to do so. It is highly recomended to use a Qualified Intermediary, in the case the second closing could be delayed and eliminate the 1031 exchange benefit.
Reverse 1031 Exchange
The investor acquires a replacement property before conveying the relinquished property to the new buyer.
1031 Exchange Rules to Consider
Investors should remember that all exchange equity must be reinvested for the full tax deferral. The addition of cash or a mortgage into or out of a 1031 transaction will create a “boot” and will create a taxable liability. Consult your tax advisor to insure a 1031 exchange meets your investment objectives