RENT Magazine Q1 '22

KEY TAKEAWAY In all 1031 exchanges, investors must complete their exchange within 180 days of their sale or the tax due date for the year in which the property was sold unless an extension is filed. 1031 Exchange Rule #5: The Exchangor has 180 days following the sale to complete the exchange

1031 Exchange Rule #3: The exchange property must be of equal or greater value

1031 Exchange Rule #4: The Investor has 45 days to identify a new property KEY TAKEAWAY The first 45 calendar days after closing on the sale of an investment property intended for a 1031 exchange is known as the "identification period." This is when an investor needs to identify potential replacement properties to buy. Properties must be identified in a signed, written document that is delivered to a QI.

KEY TAKEAWAY The general rule for

complete tax deferral in a 1031 exchange is to buy replacement property with a value that is equal to or greater than the value of the relinquished property. The net cash received at the closing of the relinquished property must go into the replacement property.

How Does a 1031 Exchange Work?

Owner (Exchanger) decides to sell investment property & notifies a Qualified Intermediary (aka QI or Accommodator) of exchange prior to the close of the sale

Funds are transferred to seller of Replacement Property(ies). Exchanger has 180 days to close of new Property(ies).

Proceeds from sale are transferred to Qualified Intermediary

SALE DATE

MUST IDENTIFY BY

MUST CLOSE BY

45-day period to identify Replacement Property(ies).

Exchanger must close on Replacement Investment Property(ies) within 180 days of the closing date of the property that was sold.

Day 0

Day 45

Day 180

HOW 1031 EXCHANGES HELP BUILD WEALTH ACROSS GENERATIONS By following these very straight-forward rules, the 1031 exchange benefits the investor and potentially, the investor’s heirs, by deferring capital gains taxes on the sale of investment properties. That’s why real estate has long been a popular asset used to build generational family wealth. Consider a matriarch who bought an apartment building in the 1980s for $1 million. Thanks to careful maintenance and upkeep, along with a good location, that property is now worth $10 million. If the owner were to sell, she would face a hefty tax on the capital gain. Instead, the owner decides to put that property in her will to be inherited equally by her grandchildren. The grandchildren could potentially apply a step-up to the current value at the time of their grandmother’s death, allowing them to create a tax-advantaged exit upon the sale of the property.

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