A Qualified Intermediary is required by the IRS to successfully complete the exchange. To learn more read our Simple Guide to Choosing a 1031 Qualified Intermediary blog.
A Qualified Intermediary must hold the proceeds during the exchange. If you control the funds in any way, you may risk disqualifying the entire exchange.
The IRS states that the relinquished property (property being sold) and the replacement property (property being bought) must be like-kind. Generally speaking, any type of investment property type may qualify for an exchange, except your primary residence. To learn more read our What is Like-Kind Property in Real Estate? blog.
The IRS states that an exchanger has 45-days from the date they sell their property to identify potential replacement property(ies).
There are 3 sub rules that apply to identifying replacement properties:
The buyer of the replacement property must be the same legal entity as the seller of the relinquished property.
In order to defer all capital gains tax, the price of the replacement property (ies) must equal or exceed the price of the relinquished property.
The mortgage amount on the Replacement Property(ies) must equal or exceed the mortgage paid off at sale of the Relinquished Property.
The exchanger must properly complete IRS form 8824 (“Like-Kind Exchanges”) and include it as part of their tax return in the year in which they sold their relinquished property.
A 1031 exchange is a big commitment, but it doesn't have to be difficult. The key is planning, and that’s why we’ve created an investor's guide to 1031 exchange investing. It tackles the art and science of completing your exchange, and the pitfalls to avoid.
What is a 1031 Exchange? features helpful charts, diagrams, timelines and concepts with non-technical language.
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