So you’ve done your research and made your decision: you want to take advantage of a 1031 exchange to defer taxes related to your real estate investment. So how exactly do you qualify for this tax strategy?
First, any investment property owner with a built-up gain (meaning the market value exceeds the property’s adjusted basis) is eligible to do a 1031 exchange. Most people think that qualifying for one is time consuming and complicated, but it’s more simple than you think.
Here’s the qualifying checklist:
You own an investment property
You are willing to sell/exchange your property for a like-kind property
Let’s talk about #1. According to Internal Revenue Code Section 1031(a)(1) an “investment property” is: “propertyheld for productive use in a trade or business or for investment.” This could be as small as a house, condo or duplex, or as large as an office building, apartment complex, shopping center, or industrial building. Even raw land and mineral royalty interests qualify; it’s all considered investment property.
Now, for #2: to qualify for a 1031 exchange you must be willing to exchange your property for another like-kind property. The term “like-kind” as it relates to real estate doesn’t mean the same property type or size property. It means the property (or properties) needs to be in the real-estate-investing realm. You can’t sell your office building under a 1031 exchange and use the proceeds to buy a plane. But you can purchase an apartment complex or even raw land.
And finally, #3: you must be willing to follow established IRS rules regarding tax-deferred exchanges. The IRS doesn’t have a long rulebook with endless hoops to jump through to complete an exchange. The most important rules are the strict 45/180-day guidelines, giving you 45 days to identify a property (or more than one) of equal or greater value, and 180 days from the day you sell your existing property to acquire the replacement property you’ve identified.
Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized”). Equity securities offered on this website are offered exclusively through Thornhill Securities, Inc., a registered broker/dealer and member of FINRA/SIPC("Thornhill"). Investment advisory services are offered through Thornhill Securities, Inc. a registered investment adviser. Realized Holdings, Inc. has a minority ownership interest in Thornhill Securities, Inc. Check the background of this firm on FINRA's BrokerCheck.
Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact 877-797-1031 or firstname.lastname@example.org.