Logan Freeman — one of Clemons’ own commercial agents — recently wrote this post on finding replacement properties in 1031 Exchanges for BiggerPockets. Learn more about how to easily get your project back on track in this great article.
In a 1031 exchange (aka like-kind exchange), an investor can defer capital gains from the sale of a productive real estate or business asset by “exchanging” it for “like-kind” property—provided certain IRS rules are met. What’s even better, you can swap until you drop since there are no limits to the number of times an investor can take advantage of the 1031 exchange.
The rules for exchanging are rooted in Section 1031 of the Internal Revenue Code. Here is a summary of the most important points of a qualifying 1031 exchange:
- “Like-kind” means both properties must be held for investment purposes (i.e., primary/vacation residences don’t count) and similar in nature, character, or class.
- A third-party intermediary is required to execute the exchange.
- You have 45 days to identify replacement property.
- You have 180 days to replace the relinquished exchange property.
- The price of the replacement property must be equal to or greater than the equity in the old property plus any outstanding debt.