1031 Exchange Rules
1031 Exchange Rules
1031 Identification Rules
1031 Exchange Rules require property owners to identify like kind
investment properties for replacement within 45 days of the close of escrow on the relinquished investment property. Furthermore, all replacement
investment properties must be acquired within 180 days of close on the relinquished investment property. All
1031 exchanges must comply with one of the follow three rules:
The Three-Investment Property Rule - This rule allows the exchanger to identify up to, but no more than 3 potential investment properties as qualified replacement investment properties within the allotted time frame.
The Two Hundred Percent Rule holds that, if three or more investment properties are identified as replacement investment properties, their aggregate market value must not exceed 200% of the value of the investment property sold.
The Ninety-five Percent Exception is used in the event that rules 1f and 2 do not apply. In such a case, the aggregate market value of the investment properties acquired in the exchange must comprise at least 95% of the closing value of the investment property relinquished.
Many 1031 exchangers prefer buying 1031 exchange property as tenants in common because of the ease of completing the transaction and closing on investment properties. This is due, in large part, to many pre-arranged financing deals available.