Important 1031 Rules
Following are some of the most basic, and most important, rules to remember when you use the option of a 1031 exchange:
Eight 1031 Exchange Rules You Can't Ignore
Tax-deferred exchanges are great ways to postpone capital gains taxes on you or your client's real estate investments. But be sure you follow the rules!
1. Exchanges can be used only for investment properties or properties owned for use in a business.
2. Exhanges must be made between like-kind properties.
3. To meet the IRS guidelines for an exchange you must identify the replacement property for the one you exchange within 45 days of the initial property transfer date. You may identify up to three properties of like value or as many properties as necessary to total the fair market value of the property you are exchanging.
4. You must close on the replacement property within 180 days from the initial transfer date of your property to the other party. Note: The IRS regulations now let you buy the replacement property first in what is called a reverse exchange.
5. If the property exchange isn't simultaneous you must use a qualified intermediary who is often a bank or attorney. They would be tasked to hold the money until the exchange is complete.
6. If you end up with cash to even out the value of the two exchanged properties, often called a "boot", that cash is taxable at current capital-gains rates.
7. All exchanged properties must be located in the US.
8. If the property you receive in exchange is from a person related to you and you then sell the property within two years, the original exchange won't qualify for deferred capital gains.
Original article source 1031 Exchange Rules
Mistakes to Avoid in a 1031 Exchange
Search