1031 Exchange: The Basics

February 16, 2022
Author: Heather Connor, Realtor

The Basics of a 1031 Exchange

We are going to talk about a tool that we have available to ourselves as real estate investors. This is one of my favorites, it is simple to utilize and the sure amount of power and leverage it offers us as investors.

7 Rules to a 1031 Exchange

1. Like-kind Property – The property being sold or being acquired must be similar or like-kind. The term like-kind property is “flexible” in the sense that you may exchange or sell your land for a residential, a condo, or other parcels of land as long as it is intended as an investment.

 

2. Investments or Business Property Only – 1031 exchanges are only applicable for investments or business property, not personal property.

 

3. The Replacement of Property should be equal to or of greater value

4. No “Boot” = No Taxes – For an exchange to be completely tax-free, the replacement of property must not be of lesser value. The difference is called “boot” and is subject to capital gains taxes.

 

5. It must involve the Tax Payer – The tax return and the name of the property being sold must be the same as the tax return and titleholder of the new property.

 

6. 45-Day Identification Window – This is the first of 2 deadlines, you must stay at or below these timeframes for your exchange to not fail. After closing the Relinquished property, the property owner has 45-days to identify up to 3 potential properties of like-kind.

 

7. 180-Day Purchase Window – The replacement property is received and the exchange is completed no less than 180 days after the exchange of the property. If you go past the 180-day window, that means the exchange has failed. Failed exchange means your taxes are not deferred and you are going to pay the taxes on the property.

If you have any questions, feel free to contact me at 

970.440.2975 | heather@cbblackdiamond.com

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