How to Find the Right 1031 Exchange Property ?

1031 property California

If you’re in the process of completing a 1031 exchange, you’ll notice that the 45-day identification period gets over instantly.

The IRS has laid down specific guidelines on eligible properties for your exchange. Suitable properties for 1031 exchange reinvestment must be “like-kind,” used in a business, trade, or investment.

There are numerous details to keep in mind when identifying a 1031 exchange property:

  • Like-Kind Property

The definition of “like-kind property” is very descriptive. You can choose from office spaces, apartment buildings, industrial parks, retail shopping centers and malls, single-family home rentals, and more. Each has its advantages and disadvantages. 

Although there’s a lot of flexibility around “like-kind” properties, it’s important to note that real estate held in the United States must be exchanged for property also owned in the United States.

  • Choose a Qualified Intermediary

You only get 45 days to identify a replacement property. It is essential to hire a Qualified Intermediary who will be responsible for holding and protecting the sale proceeds of your relinquished property. As an investor, you aren’t allowed to access the funds.

Qualified Intermediaries not only play several essential roles throughout the process, but they also provide a robust support system during the process and will ensure you comply with IRS guidelines.

  • Appoint a commercial real estate broker

Apart from a Qualified Intermediary, it is also advised to hire a broker who specializes in commercial real estate. He or she will work on your behalf to move the process along quickly and ensure that you don’t miss any deadlines. 

  • Choose properties of equal or higher value to avoid capital gains tax

If you identify a property of lesser value than your current property, you will end up paying capital gains tax on the difference referred to as “boot.”

To defer paying capital gains tax altogether, identify properties with a net market value that’s equal to or greater than the value of the relinquished property. 

You can identify more than one property

You can identify up to three properties as replacement properties. However, you don’t have to commit to buying them within the 180-day timeframe. You can close one or more, but make sure that the value of the properties is either equal to or greater than the property you’re selling to defer capital gains tax. 

Conclusion

The 1031 exchange is an excellent tool for real estate investors to defer capital gains taxes. However, the exchange process is complicated, and it is advised to seek the advice of qualified tax and real estate professionals to ensure your 1031 exchange is appropriately executed.

If you’re in the process of completing a 1031 exchange, you’ll notice that the 45-day identification period gets over instantly.

The IRS has laid down specific guidelines on eligible properties for your exchange. Suitable properties for 1031 exchange reinvestment must be “like-kind,” used in a business, trade, or investment.

There are numerous details to keep in mind when identifying a 1031 exchange property:

  • Like-Kind Property

The definition of “like-kind property” is very descriptive. You can choose from office spaces, apartment buildings, industrial parks, retail shopping centers and malls, single-family home rentals, and more. Each has its advantages and disadvantages. 

Although there’s a lot of flexibility around “like-kind” properties, it’s important to note that real estate held in the United States must be exchanged for property also owned in the United States.

  • Choose a Qualified Intermediary

You only get 45 days to identify a replacement property. It is essential to hire a Qualified Intermediary who will be responsible for holding and protecting the sale proceeds of your relinquished property. As an investor, you aren’t allowed to access the funds.

Qualified Intermediaries not only play several essential roles throughout the process, but they also provide a robust support system during the process and will ensure you comply with IRS guidelines.

  • Appoint a commercial real estate broker

Apart from a Qualified Intermediary, it is also advised to hire a broker who specializes in commercial real estate. He or she will work on your behalf to move the process along quickly and ensure that you don’t miss any deadlines. 

  • Choose properties of equal or higher value to avoid capital gains tax

If you identify a property of lesser value than your current property, you will end up paying capital gains tax on the difference referred to as “boot.”

To defer paying capital gains tax altogether, identify properties with a net market value that’s equal to or greater than the value of the relinquished property. 

You can identify more than one property

You can identify up to three properties as replacement properties. However, you don’t have to commit to buying them within the 180-day timeframe. You can close one or more, but make sure that the value of the properties is either equal to or greater than the property you’re selling to defer capital gains tax. 

Conclusion

The 1031 exchange is an excellent tool for real estate investors to defer capital gains taxes. However, the exchange process is complicated, and it is advised to seek the advice of qualified tax and real estate professionals to ensure your 1031 exchange is appropriately executed.

If you’re in the process of completing a 1031 exchange, you’ll notice that the 45-day identification period gets over instantly.

The IRS has laid down specific guidelines on eligible properties for your exchange. Suitable properties for 1031 exchange reinvestment must be “like-kind,” used in a business, trade, or investment.

There are numerous details to keep in mind when identifying a 1031 exchange property:

  • Like-Kind Property

The definition of “like-kind property” is very descriptive. You can choose from office spaces, apartment buildings, industrial parks, retail shopping centers and malls, single-family home rentals, and more. Each has its advantages and disadvantages. 

Although there’s a lot of flexibility around “like-kind” properties, it’s important to note that real estate held in the United States must be exchanged for property also owned in the United States.

  • Choose a Qualified Intermediary

You only get 45 days to identify a replacement property. It is essential to hire a Qualified Intermediary who will be responsible for holding and protecting the sale proceeds of your relinquished property. As an investor, you aren’t allowed to access the funds.

Qualified Intermediaries not only play several essential roles throughout the process, but they also provide a robust support system during the process and will ensure you comply with IRS guidelines.

  • Appoint a commercial real estate broker

Apart from a Qualified Intermediary, it is also advised to hire a broker who specializes in commercial real estate. He or she will work on your behalf to move the process along quickly and ensure that you don’t miss any deadlines. 

  • Choose properties of equal or higher value to avoid capital gains tax

If you identify a property of lesser value than your current property, you will end up paying capital gains tax on the difference referred to as “boot.”

To defer paying capital gains tax altogether, identify properties with a net market value that’s equal to or greater than the value of the relinquished property. 

You can identify more than one property

You can identify up to three properties as replacement properties. However, you don’t have to commit to buying them within the 180-day timeframe. You can close one or more, but make sure that the value of the properties is either equal to or greater than the property you’re selling to defer capital gains tax. 

Conclusion

The 1031 exchange is an excellent tool for real estate investors to defer capital gains taxes. However, the exchange process is complicated, and it is advised to seek the advice of qualified tax and real estate professionals to ensure your 1031 exchange is appropriately executed.

2 Comments

  1. James Kaiser

    Doing a small exchange and trying to determine if it is financially worthwhile. How much do you charge $28,000 exchange?
    Thanks
    Jim Kaiser
    Broker

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