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1031 Exchange Requirement

To fully defer all capital gains taxes, all 1031 exchanges must meet four separate requirements:

First, 100% of all proceeds from the sale of the first investment property must be reinvested into the second, replacement investment property.

Second, the amount of equity ( investment property value minus loan value) of the replacement investment property must be equal to or greater than that of the relinquished investment property.

Third 1031 Exchange Requirement: The property owner must not have constructive receipt of the sale proceeds at any time during this exchange period or the money becomes taxable income. Typically, this is accomplished by using a professional exchange facilitator as a middleman to hold the sale proceeds and execute the exchange documents.

Fourth 1031 Exchange Requirement: Both relinquished and replacement investment property must be like-kind. As used in IRC 1031(a), the words Like-Kind have reference to the nature or character of the investment property and not to its grade or quality. One kind of class of investment property may not, under that section, be exchanged for investment property of a different kind or class.

Contact us today to be put in touch with a qualified TIC advisor for your next 1031 exchange.