1031 Exchange Requirements
1031 Exchange Requirement
To fully defer all capital gains taxes, all
1031 exchanges must meet four separate requirements:
First, 100% of all proceeds from the sale of the first rental property must be reinvested into the second, replacement rental property.
Second, the amount of equity ( rental property value minus loan value) of the replacement rental property must be equal to or greater than that of the relinquished rental property.
Third 1031 Exchange Requirement: The property owner mustn’t have constructive receipt of the sale proceeds during the exchange period or else all funds become taxable income. Typically, this is accomplished using a professional exchange facilitator to hold sale proceeds and execute the exchange documents.
Fourth 1031 Exchange Requirement: Both relinquished and replacement rental property must be like-kind. As used in IRC 1031(a), the words Like-Kind have reference to the nature or character of the rental property and not to its grade or quality. One kind of class of rental property may not, under that section, be exchanged for rental property of a different kind or class.
Contact us today to be put in touch with a qualified 1031 advisor for your next 1031 exchange.