Here are some 1031 exchange rules that you will need to consider when doing a 1031 Exchange.
45 Days To Nominate. 180 Days to Close
Once you sell your investment property, you must close on the new property within 180 days. However, you must nominate a replacement property within the first 45 days, leaving you with 135 days left to close on the replacement property.
For Replacing Investment Properties only
1031 exchanges are not for personal property but rather investment and business property. In addition, your primary residence is exempt from capital gains taxes, up to a certain amount.
You cannot swap your primary residence for another. With the new tax legislation, only real estate qualifies for 1031 exchange. So you will not be able to 1031 exchange your car or your corporate stocks.
Your 1031 Replacement Property must be “Like-kind”
Luckily, “like-kind” is a broad term and it is not to be taken literally allowing you to exchange an apartment building for raw land, a ranch for a strip mall.
Received Money From Your Sale? Taxed
After you sell your investment property. It must go directly to a Qualified Intermediary.
- If you receive any of the proceeds, it will be considered capital gains and will be taxed.
- If you successfully 1031 exchange into a replacement property and have cash left over, that cash is called a “boot” and is taxed, generally as a capital gain.
Take your Mortgages/Loan into Account.
Any debt on the replacement property you acquire must match the debt of the property you sold. You will have to pay taxes if your debt is less in the replacement property (upleg property).
Although we provide you with 1031 exchange rules for you to follow, always consult with an exchange accommodator before completing the sale of your investment property.