The Specifics Of The 1031 Tax Exchange Rule

In 1991, the IRS issued a publication which gave the specifics of the 1031 tax exchange rule. This short article will focus upon the qualifications you need to meet to qualify for a 1031 tax exchange.

The property which you sell must fit under a particular category of the IRS code. It can only be under real estate held for business use or land used for investment. This is important to note as you can't use this to exchange your personal residence or any properties which you may want to flip. Each of these two scenarios listed above fall under land held for personal residence and land held primarily for sale. The properties you relinquish must be exchanged for other properties which are of "like-kind." Like-kind merely means that the properties must be similar in nature. This is a very vague definition as the IRS has a very vague definition well. An example could be exchanging a rental that you fixed up for some land.


A second specific of the 1031 tax exchange rule is that there must be an actual exchange of properties. You cannot trade money for property as this classified as a sale. You must sell your property and buy another property to meet this particular specific of the rule.

The third specific of the 1031 tax exchange rule is that you must use a qualified intermediary. There are companies who are licensed as qualified intermediaries who you will want to use.

The fourth specific is that you only have a 45 day window from the time you have sold your property. When you are close to completing the sale of your property, you will want to start looking for a like-kind property as soon as possible because you only have a short period of time in which to find and identify a property. You must then close on this property within 180 days. This 180 days starts from the time the property is sold as well.

Hopefully this article has given you insight into the specifics of the 1031 tax exchange rule. The information can be confusing but that is where you will pay for the services of a qualified intermediary who can help guide you through this process.

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