1031 Exchange FAQ

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Common 1031 Exchange Questions

I heard there were different 1031 Exchange rules for people who are related. How do you define related?

Is fixing up a property to sell for 1031 Exchange considered a selling expense?

How much does a Realtor get paid in a 1031 Exchange?

I have a 1031 Exchange property that I want to sell and I want to purchase one in the same day. Is this possible?n

Do I have to use the same debt and equity ratio on each Replacement property?

When Does a 1031 Exchange Sale Take Place?

The timing of the sale is a key factor. Gain or loss to the seller is not realized until the transaction has been closed. In a 1031 exchange transaction, the Identification or the Exchange Time Periods do not start to run until the transaction has been closed. In some instances, the sale might be held to have happened on an earlier date than the taxpayer believed. This could be fatal to a 1031 exchange since the Time Periods would be expired. That's why it's important to understand the rules determining "date of sale".

A sale is considered closed on the day the buyer's right to receive the property is unqualifiedly established. This usually takes place upon delivery of the deed even though actual possession by the buyer may take place later. However, it is not necessary for title to pass for a sale to take place taxwise.

For tax purposes, a closed transaction also results from a contract of sale, which is absolute and unconditional on the part of the seller to deliver a deed to the buyer upon payment of the consideration, and the buyer has the right to secure possession and to exercise all the rights of ownership.

Here is the IRS position: A sale occurs when the deed passes or when the buyer has the right of possession and the economic burdens and benefits of ownership are transferred to the buyer - whichever occurs first.

Here is an illustration of how this rule caught an unsuspecting taxpayer right in the wallet. The Awalts lost the tax-free rollover on the sale of their old house because more than 2 years went by before they bought their replacement residence. [Caution: This 2-year rollover rule has now been repealed.] Here's what happened.

The Court did not accept Awalt's contention that the sale of their old residence took place on the later date - day the legal title was transferred. The Court held the actual sale took place at an earlier date - the day the burdens and benefits of ownership shifted to the buyers. This took place on the day the agreement of sale was executed. Since this earlier date was more than 2 years before the Awalts bought their replacement residence, the tax-free exchange benefits of Section 1034 were denied them.

An agreement to sell is not a sale even if part payment is made in cash at the time the agreement is signed.

Related Info: sale, buyer, date, transaction, closed, possession

Can I 1031 Exchange the acreage near my residence?

Real Estate Held for Investment is considered like-kind and qualifies for 1031 Exchange. Your personal residence is considered Real Estate Held for Personal Use and does NOT qualify for 1031 Exchange. The scenario you describe is what is called a Mixed Classification. If all or some of the property you want to sell does not qualify for §1031 treatment, a transfer of that property in an exchange transaction will be treated as a sale of that property and subject to Capital Gains Tax. However, the property that does qualify for 1031 Exchange and an attorney can help you carve out your Purchase and Sale Agreement to reflect this.

Related Info: residence, acreage, qualify, personal, real, estate, sale, capital

What is 1031 Exchange Real Estate?

1031 Exchange Real Estate is a term used to describe Real Estate that is available for sale as a 1031 Exchange, either as a Relinquished Property or as a Replacement Property. Do not be confused by this term and do not let itsway you from considering a purchase of this type of property. A 1031 Exchange works just like a standard sale, though the seller or buyer may have a few extra rules to follow. If you are searching for 1031 Exchange Real Estate, check out our Exchanger's Clearinghouse and be sure to list your properties. It's FREE and Easy!

Related Info: estate, real, sale, term, rules, searching

Can you split a 1031 Exchange?

IRS 1031 Exchange is a vehicle tax-payers have used for 20 years to defer their capital gains tax by selling qualified, like-kind  investment or business property. 1031 Exchange have been executed by single and married tax payers, businesses and partnerships, LLC's, Trusts, TIC's and Corporations. In order for there to be an exchange, the name on the title for the property you are selling, should remain the same for the properties you are purchasing. Changing Title or "splitting" the title out, will create issues with the IRS when it comes to determine who conducted the 1031 Exchange. Better to keep the title the same all the way through. If you hold property as a partnership or business, it is also possible to "split" up the partnership with a 1031 Exchange. Depending on how the properties are deeded, partner A can purchase one property as a replacement property, while another partner B can purchase 3 other properties separate from partner A. More information about splitting up a partnership with a 1031 Exchange can be read by clicking here.

Related Info: split, title, partnership, properties, partner, splitting, business

Can I use my personal funds for a deposit on a 1031 exchange property?

During the 1031 Exchange Period (that time after you've closed on your property and before you purchase its replacement) it is sometimes necessary to put down a deposit on a replacement property. Rather than use your Exchange proceeds for this purpose (Don't do this by the way, we strongly advise against this!), we recommend using your own funds as deposit on your replacements. Just make sure to tell the closing company that you want your funds returned to you at the time of closing. This is often a less expensive strategy for securing a replacement property before you close on your relinquished property and is often a better choice in lieu of doing a 1031 reverse exchange.

Related Info: deposit, funds, personal, replacement, closing, time, expensive

What if I die before I complete a 1031 Exchange?

Though tragic, this does happen. Death and taxes are two facts of life that we all want to avoid. If you die during your 1031 Exchange Period, which is time after your sell your property and before you purchase your last replacement property, there are provisions. Your estate and heirs are giving certain Title Considerations which allow them to complete your 1031 Exchange in the event of your death.

Related Info: complete, death, giving, heirs, title, allow

How do I figure my 1031 Exchange Closing Costs?

Your Title/Escrow/Mortgage/Closing company can help you figure out your 1031 Exchange closing costs. Be sure to choose a Qualified Intermediary with competitive rates and secure funding. Check out our 1031 Exchange Fee Schedule for more information.

We also recommend that you remind your closer and real estate agent that  selling expenses can offset against boot received. Factoring in this offset is critical when the exchange is originated and in the planning stages. Selling expenses paid in connection with a §1031 exchange are treated as cash boot paid and offsets any boot received. Selling expenses include brokerage commissions and other closing costs such as title policy fees, escrow fees, and recording fees.

Related Info: costs, closing, figure, boot, fees, selling, expenses, offset

Can you do a 1031 Exchange with your son?

The IRS has laid out some specific rules regarding a 1031 Exchange with relatives. Careful review of our 1031 Exchange Knowledge Base regarding 1031 exchange with relatives reveals,
"Exchanging with a related party is OK - but to qualify for §1031 treatment, you must know exactly what an exchange with a related party really means and the rules for making it work.
There are two kinds of exchanges involving related parties. One is a direct swap between related parties. The other is an exchange involving a sale of the Relinquished Property and the acquisition of a related parties property.
First, let’s look at the direct swap. It may qualify for 1031 treatment but a special 2-year rule applies that could result in triggering the gain when you least expect it. This rule affects all like-kind exchanges between related parties including reverse exchanges. Under this rule if you or the related party disposes of the property within 2 years after the exchange, the exchange is disqualified and gain or loss will be recognized for both you and the related party as of the original date of the exchange.
Some exchanges involving related parties are not subject to this unforgiving rule. These exchanges do not involve the direct swap of properties between related parties but related parties are involved. Here is an example of this frequent kind of exchange:
You are the owner of a property you want to sell. Your daughter owns the property you wish to acquire. She is not interested in your property but is willing to sell her property. You find a buyer for your property (Relinquished Property) but before closing the transaction enter into an exchange agreement with your Qualified Intermediary. As part of the exchange, you purchase your daughter’s property as your Replacement Property. Since you are the only party qualifying for §1031 exchange treatment, the exchange is not subject to the 2-year rule. Daughter has a taxable sale.
Before the 2-year rule, taxpayers used the exchange with a related party to sell highly appreciated real estate without recognition of gain. Here is a Parallel Point illustrating how taxpayers used the exchange with related parties to sell highly appreciated property without recognition of gain."

Related Info: , related, parties, party, rule, exchanges, gain

How do I find 1031 Exchange Replacement Properties?

Answer: Often Exchangers already have their 1031 Exchange Replacement property lined up before they close on their Relinquished Property. For those who don't, there are many resources on-line for finding a replacement property. Our 1031 Exchange web site at realtyexchangers.com has a couple of really good resources available to you.

First. Check out our list of 1031 professionals from every major US city in every state! Shopping for Realtors? This is where to look. There are probably many 1031 pros available in your area, RIGHT NOW. Visit our 1031 Exchange Professionals Directory today!

Second. When we first launched our web site over 15 years ago, we were the first to offer a comprehensive search engine for finding 1031 Exchange replacement properties. It was called the Exchanger's Clearinghouse and it was extremely popular among 1031 Exchangers. When we relaunched our web site last Summer, the Exchanger's Clearing house was relaunched as well. Though still new, it is fast becoming a resource of for 1031 Exchange properties. Listing your properties is always FREE and we have "Haves" and "Wants" lists. Visit the new Exchanger's Clearinghouse today!

Related Info: properties, replacement, exchanger's, site, clearinghouse, professionals

We are considering selling our portrait photography studio with about one acre of land. We want to know if we can use the 1031 exchange rule to use the money that would be taxed to reinvest into rental property.

Hi Elaine! 1031 Exchange properties are those considered a like-kind by the IRS. This includes business real estate and land. So if you are selling a portrait studio, if the business owns the building and the land that it occupies, you may sell it and exchange for a rental property. However, it should be noted that you cannot sell the business itself in exchange for real estate. This will not work. The like-kind rule covers the equipment in a business, though it must be exchanged for like-kind business equipment, ie computers for computers, desk chairs for desk chairs, etc.

Related Info: money, rule, taxed, reinvest, rental, land, business, like-kind, equipment, computers, estate

How safe in your money in an escrow account for a 1031 Exchange?

Qualified Escrow Accounts are about the safest type of account you can have when you are working with a Qualified Intermediary (Realty Exchangers), this is because you QI cannot access any of the money without your knowledge and signature. Also, insist that your QI apply FDIC insurance on all of your proceeds. Few QI's offer this service, though Realty Exchangers does. Read more about Fund Security here.

Related Info: account, escrow, money, safe, realty, exchangers, qi's, insurance, fdic, proceeds

When my qualified Intermediary holds my funds, how safe are they?

Given todays economic climate, we can think of no better question to ask. You should know that as your 1031 Exchange Qualified Intermediary, Realty Exchangers takes the safety and security of your funds very seriously.

For over 20 years now the safety of client proceeds has been of prime importance to us and here's what we've done about it.

The two most important areas of concern are:

1. The Bank where client funds are deposited.
2. The Qualified Intermediary.

1.) The Bank: Although our bank is considered strong and very well capitalized the only real safety for bank accounts today is "FDIC" (Federal Deposit Insurance Corporation) insurance. Our bank, Riverview Community Bank of Vancouver Washington, has qualified for the FDIC's Transaction Account Guarantee Program and ALL OF REALTY EXCHANGERS ACCOUNTS ARE "FDIC" INSURED. Unlike previous "FDIC" insurance there is no upper limit on the amount.

2.) The Qualified Intermediary: Our company is Licensed, Insured, and Bonded but the only real protection is a QUALIFIED ESCROW AGREEMENT. This is a separate signed agreement between you, us, and the bank, which requires you to approve in writing any withdrawal of your 1031 funds. At the same time it keeps control of the 1031 funds with Realty Exchangers, Inc. thereby meeting the IRS's §1031 requirements (see note below). Unless otherwise requested ALL EXCHANGE ACCOUNTS WILL NOW INCLUDE A QUALIFIED ESCROW AGREEMENT.

Note: The Qualified Escrow Agreement is signed by all parties at the time of closing of the relinquished property. When the 1031 funds are wired into Realty Exchangers account the bank places a hold on the account. Then when the exchanger is ready to close on the replacement property a form is signed by the exchanger (you) that authorizes the bank to release the specified amount to that escrow as requested by Realty Exchangers wiring instructions. Quite simply, the exchanger will have to authorize any use of their 1031 funds.

We want you to feel secure and able to devote your full attention to the structure and completion of your 1031 exchange knowing that your funds will be there when you need them.

Related Info: safe, funds, holds, bank, realty, exchangers, escrow, agreement

Can I take a note as part of a 1031 Exchange?

If you 1031 exchange real estate held for business use or investment, you can qualify under 1031 for a nontaxable like-kind exchange. The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up.

In a like-kind exchange, you do not recognize gain from the property you receive. But you will recognize gain if you also receive money or other property. Money and other property received is called boot. The fair market value of boot received is recognized gain. However, there's a happy exception if you receive, as part of an exchange, an installment obligation.

Even though the fair market value of the installment note received is boot and recognized as gain under the like-kind exchange rules, the gain may be reported using the installment method of tax accounting. For full coverage see Chapter Eight—Exchanges Involving Installment Sale Notes.

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Are the 1031 Exchange funds liquid?

When you deposit your 1031 Exchange proceeds into your Qualified Intermediary's trust account, these funds should be kept in a liquid state, meaning that they can be accessed at any time for the purpose of purchasing a Replacement Property. This is a very important question to ask when you are considering hiring a QI and you should ask it BEFORE you hire them. Some QI's deposit your funds in high interest yielding accounts and have limits to how quickly you can access your funds. At Realty Exchangers, we believe that your money is your money and you should be able to spend on replacement properties whenever you see fit. This is why we keep your funds completely liquid, FDIC insured and only accessible by you in a Qualified Escrow Account.

Related Info: liquid, funds, replacement, money, deposit, account

What if my 1031 Exchange Replacement Property has a mortgage?

A 1031 Exchange for a mortgaged property is common, though there are some issues you should consider:

We all know that mortgages are paid at the time of closing.  Any xcess is treated as "boot paid" which is subject to this rule:

Mortgage boot paid offsets mortgage boot received but does not offset cash or unlike property boot received.

Negative mortgage relief counts as boot paid and adds to the basis of Replacement Property. Knowing how this treatment could affect your exchange is essential in your tax planning.

Related Info: mortgage, replacement, boot, paid, adds, counts, negative

In a 1031 Exchange, what does like-kind mean?

Like-kind is a federal tax term relating to the nature or character of the real estate in the hands of the owner rather than to its grade or quality. The fact that the real estate is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class.

Qualified real estate located in the 50 United States is of like-kind when it is 1031 Exchanged for other qualified real estate located in the 50 United States and the U.S. Virgin Islands. The definition of "50 United States" means exactly that. Any foreign real estate included in the exchange will be treated as boot paid or received.

Related Info: like-kind, real, estate, united, states, grade, quality

Can land that is held in an irrevocable trust qualify for a 1031 exchange?

Even if the buyer's money would be put into a trust and the trustees would assume the trusteeship of the other's trust and the beneficiaries of each trust would be swapped. There is not much we can do for you with a 1031 Exchange. The biggest problem with trusts, is that they get involved in so many legal issues. And since there are so many different kinds of trusts, with so many unique variations, it is very difficult to answer you question without knowing all of the details of your particular case. Since we are barred from providing legal advice, we recommend you discuss this with your attorney or the trust's attorney.

Related Info: qualify, irrevocable, land, attorney, trusts, legal, particular, knowing, difficult

Why is depreciation important to a 1031 exchange?

Depreciation is important in a 1031 Exchange because it is the amount of money you have taken off of your yearly taxes since you purchased the property. It is part of the formula for determining your basis when figuring out whether you will have capital gains on the sale or purchase of a property.

The depreciation recapture provisions of §1250 (real property) and §1245 (personal property) apply to 1031 Exchange as well as sales. These provisions require certain depreciation to be recaptured as ordinary income (instead of long-term capital gain) when the property is sold or exchanged and a gain is recognized.

If you exchange property subject to recapture, and no gain is recognized, the “recapture potential” of the Relinquished Property carries over to the Replacement Property.

If you exchange property subject to recapture, and gain is recognized because of boot taken, the ordinary income portion of the recognized gain is limited to the depreciation that would be recaptured as ordinary income if the property had been sold.

If you exchange property subject to depreciation recapture, and gain recognized because boot taken is less than depreciation that would be recaptured as ordinary income if the property had been sold, all the recognized gain will be taxed as ordinary income. The balance “recapture potential” carries over to the property acquired in the exchange.

Related Info: depreciation, gain, recapture, recognized, ordinary, income

Can I 1031 exchange property held for personal use for property held for productive use? Why not?

In a 1031 Exchange, property held for personal use can not be exchange for property held of productive use because personal use property is not considered like-kind with productive use property. In a property exchange, you must exchange like for like. Here is an excerpt from our 1031 Exchange Knowledge base:

The nonrecognition rules of §1031 do not apply to an exchange of one kind or class of personal property for personal property of a different kind or class. However, there’s an important exception to the personal property rules related to deferred exchanges of real estate. It’s explained in Chapter Five. The exception defines incidental personal property transferred with real property in a §1031 exchange.

Depreciable tangible personal property may be either “like-kind” or “like class” to qualify for nonrecognition treatment. Personal property of a like class is considered to be of a “like-kind.” Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class.

General Asset Classes describe the types of property frequently used in many businesses. They include:

Office furniture, fixtures, and equipment,
Information systems (computers and peripheral equipment),
Data handling equipment (except computers),
Airplanes (airframes and engines), planes used in commercial or contract carrying of passengers or freight, and all helicopters (airframes and engines),
Automobiles, and taxis, Buses,
Light general purpose trucks,
Heavy general purpose trucks,
Railroad cars and locomotives (except those owned by railroad transportation companies),
Tractor units for use over the road,
Trailers and trailer-mounted containers,
Vessels, barges, tugs, and similar water-transportation equipment (except those used in marine construction), and
Industrial steam and electric generation or distribution systems.

Product classes include property listed in a 4-digit product class (except any ending in “9”, a miscellaneous category) in Division D of the Standard Industrial Classification codes of the Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (1987) (SIC Manual).

Copies of the SIC Manual may be obtained from the National Technical Information Service, an agency of the U.S. Department of Commerce.

Here are two examples taken from Reg 1.1031(a)-2 Additional Rules for Exchange of Personal Property [xx] :

You transfer a personal computer used in your business for a printer to be used in your business. The properties exchanged are within the same General Asset Class and are therefore of like class.

Henry transfers a grader to Ron in exchange for a scraper. Both are used in a business. Neither property is within any of the General Asset Classes. Both properties, however, are within the same Product Class and are therefore of like-kind."

Related Info: productive, personal, class, general, asset, product, properties

Can income from a timber deed be used in a 1031 exchange?

Timber is an example of 1031 Exchange like-kind property and may be exchange for other like-kind 1031 exchange property. Review our 1031 Exchange Knowledge Base:

Timberlands differing in quality and quantity of timber.
Timberland, with a reservation of timber cutting rights, for timberland.

Additional reading may be found here http://www.realtyexchangers.com/1031_Exchange_Information_Center/Topic_2_-_Qualified_Property.php#_1Timberlands

Related Info: deed, timber, income, like-kind, timberland, cutting, rights, reading

Can I 1031 Exchange a property that I'm gifting to my daughter?

You should be very careful here. The IRS is quite specific regarding gifting 1031 Exchange properties. They have stated that there MUST be an actual sale in order for there to be an exchange.

You will not get 1031 Exchange benefit merely if you intend to exchange—you must actually make an exchange of your property.

Related Info: daughter, gifting, benefit, order, intend, exchangeyou, actually, sale

Can I 1031 Exchange my property with no mortgage for one that has one?

You are talking about a 1031 like kind exchange of unencumbered property for encumbered property. Proceed with caution and make sure you know what you are getting into. Here is some important information to consider with your tax advisor.

If you do not assume the mortgage on mortgaged property received in a 1031 exchange, you are taking the property subject to the mortgage. You are treated as if you assumed the mortgage.
If the mortgage you assume is less than the mortgage on the property given up, the net liability—called mortgage relief is counted as boot received by you.
If the mortgage you assume is more than the mortgage on the property given up, the excess is counted as boot paid by you.
If you transfer unencumbered real estate in exchange for mortgaged real estate, you have paid boot equal to the amount of the mortgage. The payment of mortgage boot does not result in recognition of gain or loss to the person paying it.

Related Info: mortgage, boot, assume, real, estate, given

Before I 1031 Exchange a property, can I borrow against it?

An interesting concept, this is called anticipatory mortgaging and has some benefits for a 1031 Exchange. What if you were to refinance your Relinquished Property prior to the exchange to get cash and then raise the mortgage to be assumed or paid off by the buyer? Remember these things:

Borrowing money on your property is not a taxable event so it won't affect your 1031 Exchange.
The higher mortgage increases the amount of mortgage boot received that qualifies for offsetting against mortgage boot paid.

Let's say Davis wants to exchange Cloverleaf Apartments for Sunshine Apartments owned by Roberts. The terms of his exchange include:

Davis assumes a mortgage of $274,000 on the property he acquires in the exchange.
Davis has a mortgage on Cloverleaf of  $100,000 that will be assumed by Roberts.
Based on the market values of the properties, Davis receives cash boot in the amount $200,000 to balance the equities.
When the exchange is closed, Davis receives taxable boot in the amount of $200,000 making him very unhappy.
Here’s how his taxable boot is figured following the offset rules of 1031:
Mortgage on Cloverleaf Property relinquished was $100,000 (mortgage boot received)
Deduct mortgage on Brentwood assumed by Jones - $274,000 (mortgage boot paid)
This results in a negative offset - $174,000
However, under the rules, mortgage offset cannot be less than zero. Davis gets no boot offset from the difference of $174,000 to offset his cash boot received of $200,000. The result is Davis gets hammered for a $200,000 taxable gain.

Experienced 1031 exchangers are quick to recognize transactions where negative boot relief can result in more gain being recognized from net boot received. In our example, Davis should consider borrowing on his Relinquished Property (Cloverleaf) prior to and outside the exchange transaction. If he refinanced and took out $175,000 cash (non-taxable), his boot would be figured like this:

Davis assumes a mortgage of $274,000 on the property he acquires in the exchange.
Davis has a mortgage on Cloverleaf of  $275,000 that will be assumed by Roberts.
To balance the equities, Davis receives cash boot in the amount $25,000.
When the exchange is closed, Davis receives taxable boot in the amount of only $26,000 making him very happy. Here’s how the taxable boot for this exchange is figured following the offset rules of 1031:
Mortgage on Cloverleaf Property relinquished was $275,000
Deduct mortgage on Sunshine assumed by Davis - $274,000
Difference – Mortgage relief boot received by Davis is $1,000
Add Cash boot received of $25,000
Total boot received by Davis is $26,000
By refinancing outside the exchange, Davis reduces his gain $200,000 to only $26,000.

Exchangers should seriously consider some financing moves outside the exchange to reduce the negative boot relief to zero if possible. Even though equities would not change, the amount of taxable boot could be substantially reduced. This can be accomplished but only with very careful and knowledgeable planning. You don’t want any financing moves treated by the IRS as part of the exchange transaction.

If the refinancing can be demonstrated to be unrelated to the exchange of the Relinquished Property, the proceeds of the refinancing will not be characterized as boot.

The IRS issued a Proposed Regulation making such mortgage proceeds taxable but it was not adopted.

Replacement Property may be refinanced after the exchange is closed and the proceeds used by the owner for any purpose. This is a non-taxable event. However, to qualify, the refinancing must not be connected to the exchange transaction such as a contingency for the exchange to close. The exchange agreement and closing statements should be silent regarding the refinancing.

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Do I need to change my purchase and sale agreements to conduct a 1031 exchange?

No. The decision to sell your property as a 1031 exchange is yours alone. Realty Exchangers will supply you with an Assignment of Purchase and Sale Agreement which must be signed by both parties. This agreement stipulates that Realty Exchangers is your Qualified Intermediary and you are assigning us contract rights in your behalf for the property. We will contact your Title/Closing Agent and inform them that we are your Qualified Intermediary and will supply them with the documents necessary to close sale on your property.

Related Info: conduct, agreements, sale, purchase, change, supply, agreement, exchangers, realty, rights

Does the 1031 exchange have to be included in the purchase agreement?

Normally, in a 1031 Exchange, we encourage tax payers to use the following clause in their Purchase and Sale Agreements.

"Buyer hereby acknowledges it is the intention of Sellers to complete a deferred exchange and qualify for treatment under Internal Revenue Code Section 1031. This exchange will not delay the closing (of escrow) or cause additional expense to Buyer. Seller's rights and obligations under this agreement may be assigned to a Qualified Intermediary (as defined in IRS Regulation 1.1031(k)-1) of Seller's choice for the purpose of completing the exchange. Buyer agrees to cooperate with Seller and the Qualified Intermediary in a manner necessary to complete this exchange."

However, in situations where time is of the essence a suggested clause that the deal is a 1031 Exchange doesn't necessarily have to be included in the purchase and sale agreement. The Seller providing the Closing company with the documents necessary to convert the sale to an exchange (these are supplied by the Qualified Intermediary) is sufficient.

Related Info: agreement, purchase, included, sale, buyer, complete, seller, closing

How easy is it to sell my commercial building and 1031 exchange into smaller office complex?

You could structure your transaction to qualify for 1031 exchange treatment depending on the cost of the Replacement Property (Office Complex).

You have 3 options when it comes to purchasing your replacement properties;
The 3-Property Rule
The maximum number of replacement properties you may identify is three properties without regard to fair market values of the properties.
The 200 Percent Rule
You may identify any number of properties as long as their total fair market value does not exceed 200 percent of the total fair market value of all Relinquished Properties.

You figure fair market value of Replacement Property as of the end of the identification period. You figure fair market value of Relinquished Properties as of the date you transfer them.

If, as of the end of the identification period, you have identified more properties as replacement properties than permitted, you are treated as if no Replacement Property has been identified.
The 95 Percent Rule
You may identify any number of Replacement Properties if during the Exchange Period you actually received identified Replacement Properties

Related Info: complex, office, smaller, building, commercial, properties, replacement, market, fair, value, rule

Do you have to have a Qualified Intermediary for a 1031 Exchange?

One of the rules of 1031 Exchange is the necessity of Safe Harbor. Safe Harbor is the storing of your 1031 Exchange proceeds with protections from Constructive Receipt. If you are in direct control of your proceeds at any time during your 1031 Exchange period, you are in danger collapsing your 1031 Exchange and having to pay the capital gains tax on your sale in the same year, rather than defer the gains to some future date.  More information about Safe Harbors and why you need them for your 1031 Exchange can be found in our 1031 Exchange Knowledge base.

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Is it too late to do a 1031 Exchange, money is in escrow, haven't signed papers or given up title yet?

If you haven't given up title or signed any papers then you haven't officially closed the sale, even though your buyer has already deposited the funds into Escrow. Because of this, you still have time to convert the sale into a 1031 Exchange. The best and quickest thing to do is contact Realty Exchangers, RIGHT NOW! You may call them at 800-570-1031 or visit their web site at http://www.realtyexchangers.com. If you already have all of the information together and want to fast-track delivery of your 1031 Exchange documents, visit http://www.realtyexchangers.com/SETUPEXCHANGE.php ASAP!

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What is the 1031 Exchange Period?

The 1031 Exchange period is considered the time AFTER you close sale on your property until you purchase your last Identified Replacement Property. This period of time can be no longer than 180 days and you are not able to access any of your 1031 Exchange proceeds during this time for any other reason than purchasing your replacement properties. Using your Exchange proceeds for anything other purchasing replacement properties puts your exchange in danger of collapsing. This is something you should avoid.

Related Info: period, replacement, time, purchasing, properties, proceeds

I want to 1031 exchange a property that I own in Pennsylvania for one in Las Vegas, does this make a difference?

The only issue you should be concerned with when you want to 1031 Exchange Real Estate is if the properties qualify as like-kind with the IRS. Whether you exchange a property in one state with a property from another state does not matter as the section 1031 exchange is an federal action with the IRS. We always recommend that you review your situation with your CPA or tax attorney. These pros are knowledge of the laws in your specific state and city. Sometimes there are rules in various regions that your CPA or attorney can help you with.

Related Info: difference, vegas, pennsylvania, state, attorney, pros, situation, review, knowledge

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