For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange.
On or before the day which is 45 days after the date on which the Taxpayer transfers the relinquished property, the Taxpayer must unambiguously identify the replacement property, in a writing signed by the Taxpayer and delivered to at least one party to the exchange who is not a "disqualified" person, usually the Qualified Intermediary (QI). § 1031(a)(3)(A).
In order to qualify for tax deferral treatment under Internal Revenue Code § 1031, the taxpayer who is the seller of the relinquished property must also purchase the replacement property. For example, if Alex Smith as an individual sells his relinquished property, Alex Smith as an individual must also buy the replacement property. This sounds simple enough, but oftentimes investors overlook this important detail.
Equal or Greater in Value and Equity
One of the most common questions we receive from taxpayers who plan to do a 1031 exchange is “How much do I have tobuy in order to defer my taxes?” While it’s important to have your tax advisor weigh in on this, there is a shorthand way to figure out whether the purchase you are contemplating will be enough to successfully complete your exchange.
Tax-deferred exchanges under Section 1031 of the Internal Revenue Code are a great tool for deferring gain on the sale of investment property; however, investors can reap these benefits only if the exchange is structured properly. One
requirement for a properly structured exchange involves limitations on when an investor can access funds.
Performing a 1031 tax-deferred exchange these days is a lot simpler than it used to be. Still, there are important things that you should know as real estate agents to make sure that you provide the highest level of service to your 1031 client. One of the most common, and perhaps most significant, questions that is often asked is, “What language do I need to include in the purchase and sale agreement?”
How long must property be “held” for investment in a 1031 tax-deferred exchange? This is one of the most commonly asked questions in an exchange transaction. Though the Internal Revenue Code and Treasury Regulations are silent on this issue, a careful analysis of case law yields some principles that can be stated with certainty.
With extremely strong negotiation skills, powerful sale methods, and an extensive amount of all-around real estate knowledge, Harmik Aghakhani will net you the most amount of dollars better than anybody else could after all closing costs and fees. Contact him today!