Summary of Rules for 1031 Exchange

True for Both Types of Exchanges (Forward and Reverse):

  1. Old and new properties must both be held for a qualified use. Those uses are held for investment or used in trade or business.
  2. The exchanger must first have written exchange agreement (similar to an escrow agreement) with Qualified Intermediary (QI).
  3. In order to defer ALL income taxes: New property must be equal or up in fair market value (FMV) and in equity.
  4. Any thing of value received in the exchange that is not “like kind” (like cash) is taxable.
  5. All real estate is “like-kind” to all other real estate. What is Real estate is defined by State law.
  6. Person or entity on title of old must be person or entity on title to new.
  7. OK to exchange multiple old properties for new property or vice versa. Fractional interests are also OK.
  8. Owner carried financing handled outside of exchange under IRC section 453.
  9. &lquo;Related party&rquo; transactions have additional requirements.
  10. Basis of old carried forward into new, with adjustments.

In addition to rules 1-10 above in a Forward exchange, the Exchanger must:

  1. Not receive constructive receipt of funds from sale.
  2. ID new property, in writing, within 45 days.
  3. Buy new property within 180 days.

In addition to rules 1-10 above in a Reverse exchange, Exchanger must:

  1. Not hold title to both properties simultaneously.
  2. &lquo;Park&rquo; either the old or new property with and Exchange Accommodation Titleholder.
  3. Exchange Accommodation Titleholder cannot hold title to property for more than 180 days.
  4. ID old property within 45 days if new property is &lquo;parked&rquo;.
  5. Provide funding to purchase new property.

This information was provided courtesy of 1031x.com

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