1031 Exchange Regulations: Top 5 Rules for Investors

Five Important Rules for a 1031 Exchange

1. Net selling price

To defer all tax, investors must purchase a property/properties of equal or greater value than the net selling price (NSP) of the relinquished property. NSP = contract price - (title fees and realtor commissions). If replacement properties are less than the NSP, you will be taxed on the difference.

2. Usage

The property must be held for business/investment use. Investors may not exchange primary or secondary homes. All other real estate qualifies. Sale property and property for purchase both require deeds(i.e., sell deed and purchase deed).

3. 180-day deadline

Investors have 180 days to complete the exchange and must close on all intended purchases within 180 days of closing on the sale.

4. 45-day deadline

Within the first 45 days of the 180-day period, investors must identify up to three possible replacement properties. Only these properties qualify for the exchange. Restrictions apply to investors who wish to identify more than three properties.

5. Qualified intermediary

Investors must use a QI to facilitate exchanges.

Property That Qualifies for a 1031 Exchange

• Property used for business purposes
  
  
• Investment property
  
  
• Property you have rented
  
  
• Land can qualify if it was held for speculation

You may sell one piece of property and purchase two or more properties with the funds. The value of the replacement properties must be greater than the value of the relinquished property to defer all taxes. You can also sell multiple properties and combine the funds to purchase one replacement property.

Property That Does Not Qualify for a 1031 Exchange

• Primary residences (explained in IRC Section 121)
  
  
• Property not intended for business or investment use
  
  
• Second homes with little or no rental history
  
  
• Fix-and-flips

Qualified Intermediary (QI)

Exchange regulations are complex. Investors are required to use a QI to facilitate these transactions. The QI may not be any agent or fiduciary of the investor (i.e., attorney, realtor, CPA, etc.). Failing to comply with key requirements can invalidate the transaction, negate the tax benefits and result in unnecessary penalties. The QI must be contacted to initiate the exchange before closing. The QI prepares the exchange agreement, escrows the proceeds, and coordinates the exchange with closing agents.

WHY CHOOSE EQUITY 1031 EXCHANGE

• Our staff has over 50 years of combined experience facilitating 1031 exchanges.
• We have state-of-the-art technology, smart data security, and the guaranteed best client service.
• Equity 1031 Exchange has a CES® (Certified Exchange Specialist®) on its team.
• Equity 1031 Exchange is nationwide. We facilitate 1031 exchanges in every state with more than half of our exchanges occurring in the state of Florida.
• We are a proud member of the Federation of Exchange Accommodators (FEA).
• Our nationwide presence gives us expertise in exchanges of all types.

CERTIFIED EXCHANGE SPECIALIST® (CES®)

Investors considering exchanges are advised by the Federation of Exchange Accommodators (FEA) to consult with a CES®. Referring professionals (such as realtors, attorneys, title companies or accountants) should notify their clients that using a company that employs a CES® ensures transactions adhere to the stringent IRS rules. As a qualified intermediary, Equity 1031 Exchange IRA has a CES® on staff. 

Getting Started with a 1031 Exchange

READY TO GET STARTED?

If you’re interested in doing a 1031 exchange with Equity 1031, please complete this form. A member of our team will then contact you within one business day to start your 1031 exchange.

Please note: you must set up your exchange before closing on your property. We request three to five business days to set up a Standard Exchange. Contact Equity 1031 Exchange for timelines on setting up a Reverse or Improvement Exchange.

Typical 1031 Exchange Timeline