EXCHANGE PLANNING

Generally, all real estate is like-kind to other types or kinds of real estate. For example, an apartment building could be exchanged for a retail center.

An unrelated third party or Qualified Intermediary (QI) may be used to facilitate the 1031 exchange transaction. A taxpayer cannot utilize their realtor, lawyer, accountant or a related
party, or agent as a QI. Additionally, several states require that QIs be compliant with regulatory requirements regarding insurance, bonding, and the manner in which exchange funds are held, state licensing, etc.

A taxpayer is required to acquire or identify the target replacement property within 45 days after the transfer of the relinquished property. A written document that recognizably identifies the replacement property must be signed by the taxpayer and received by the Qualified Intermediary on or before the 45th day. Properties acquired within the 45-day designation period are deemed to be identified.

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A taxpayer has 180 days (or the due date for filing of taxes for the year the property was sold) to acquire the replacement property. For example, if the relinquished property is sold in December, the due date for the filing the tax return for that year would be less than 180 days. In such case, it would be necessary for the taxpayer to file for a tax-filing extension in order to utilize the full 180 days.