Understanding the Timing and Rules of 1031 Exchanges

1031 Exchanges: What Are the Timeline Requirements and Rules?

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code. This exchange (also called a like-kind exchange) can be an important tax savings tool for those who own an investment property that has risen in value. Previously on the blog, we identified everything you need to know about 1031 exchanges and we shared some important rules to remember. Today, the Davidson Law Group revisits the topic and provides an overview of the timing and identification rules of 1031 exchanges.

Choosing a Replacement Property: Timeline Requirements

To receive the full benefit of a 1031 exchange, your replacement property should be of equal or greater value. There are strictly enforced time limits when setting up the exchange. After selling the original property, you have 45 days to determine your replacement property and you have 180 days to acquire this replacement property. The exchange must be completed in 180 days, not 45 days plus 180 days. Due to these time limits, it’s wise to have a replacement property locked in before you sell your property. If you have questions or concerns, the attorneys at the Davidson Law Group can help guide you through all of these deadlines and legal limitations.

The Role of Qualified Intermediaries

Under section 1031, any proceeds received from the sale of property remain taxable. Therefore, these proceeds must be transferred to a qualified intermediary rather than the seller of the property. The qualified intermediary is a (third party) person or company that accepts the transaction funds and then holds them until they can be transferred to the seller of the replacement property.

Identification Rules

You’re required to provide either a legal description or an address of the potential replacement property. If you wish to purchase multiple properties, you need to meet one of the following guidelines:

The Three-Property Rule

You can identify up to three properties of any value with the intent of purchasing at least one.

The 95% Rule

This rule allows you to identify as many properties as you want, as long as you obtain properties valued at 95% of their total or more.

The 200% Rule

This rule allows you to identify unlimited replacement properties as long as their total value doesn’t exceed 200% of the value of the property sold.   

If you are unsure about whether or not you qualify for a 1031 Exchange, contact the experienced attorneys at the Davidson Law Group.

Contact the 1031 Exchange Experts Today

If you’re selling investment Real Estate and you are looking to postpone paying taxes on that property, the Davidson Law Group can help you save money with a 1031 Exchange. To learn more about how we can help, contact us today in Fort Worth, Allen, or Tyler.