RENT Magazine Q2 '22

You may wonder why we use the term “exchange” to describe selling one property and buying another. After all, in today’s typical §1031 exchange, there is no direct trading of assets. The original rules contemplated transactions in which two or more parties literally exchanged assets. These early transactions had quaint names like “three corner exchange”. 6 In 1979, the Ninth Circuit invented a new form of exchange: a transaction now could qualify for non- recognition treatment, even if the taxpayer delayed acquiring the replacement property for up to two years. This approach became known as a “Starker

Exchange”, after the Oregon plaintiff-taxpayer in the case. 7 Congress responded to the Ninth Circuit’s judicial legislation by enacting the familiar deadlines we know today: 45 days to identify and 180 days to close. The U.S. Treasury Department was fairly slow to promulgate rules for §1031 exchanges. It was not until 1991 that Treasury published “safe harbors” for conducting an exchange. “Safe harbor” means that, in the view of a regulating agency, you are in compliance with a statute if you follow certain guidelines that do not actually exist in the original law. 8

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