1031 Tax Exchange Rules—The Basics

Before you open an exchange, know the basic 1031 tax exchange rules.

Identify the Right Property

Select potential replacement property using 1 of 3 options:

  1. Up to 3 properties of any value
  2. Any number of properties with a combined value of less than 200% of the value of your relinquished property
  3. Any number of properties, if you acquire 95% of the combined value of the identified replacement property

Make Sure Your New Property Is Like-Kind

Your replacement property must be like-kind to your relinquished property, For example, real estate for real estate or a car for a car.

Ensure Equal Value

To defer all capital gains tax, you have to use all relinquished property proceeds to purchase “like-kind” replacement property of equal or greater value.

Purchase period example to help you understand 1031 tax exchange rules

Meet the Purchase Period

You need to identify your replacement property within 45 days and acquire all of it within 180 days of selling your relinquished property.

Equal value example to help you understand 1031 tax exchange rules

Ensure Qualified Use

You have to hold your relinquished and replacement properties for investment or productive use in a trade or business. You can’t hold it for resale or personal use.

Understand property ownership requirements.

Also, know there’s no set holding period. Treat your replacement property as an investment, not as inventory.

Don’t Go It Alone

Contact Exchange Services, LLC., for the expertise and support you need to make a successful 1031 exchange.