What are the requirements and rules for a 1031 Exchange?

All 1031 Exchanges, regardless of type, are subject to two key deadlines: a 45-day identification period and a 180-day exchange period.

To comply with IRC § 1031, the taxpayer must identify potential replacement property(ies) in writing within 45 days of selling the Relinquished Property. This identification must be submitted to the qualified intermediary and must include specific and clear descriptions of the replacement property(ies), such as a physical address or legal description.

There are three identification rules a taxpayer can use to select potential replacement properties, each with its own requirements. The taxpayer can choose the rule that best suits their exchange situation:

1. 3-Property Rule: The taxpayer may identify up to three properties, regardless of their market value. They must close on at least one of these properties for the exchange to be valid.

2. 200% Rule: The taxpayer may identify more than three properties, but the total combined fair market value of all identified properties cannot exceed 200% of the value of the Relinquished Property(ies).

3. 95% Rule: The taxpayer may identify an unlimited number of properties, as long as the combined fair market value exceeds 200% of the value of the Relinquished Property(ies). However, the taxpayer must acquire at least 95% of the identified properties' total market value.

   
   

In addition to the identification period, all 1031 Exchanges have a 180-day time limit, beginning on the day the Relinquished Property is sold. If the taxpayer has not purchased the Replacement Property by the 180th day, the exchange is considered closed, and the taxpayer must recognize and pay taxes on the proceeds from the sale. There are no extensions or exceptions to this deadline.

Its important to work with a company that understands all of these intricacies. Reach out to our specialist at 1031 Asset Solutions 844-401-1031.