Six IRS Rules of a 1031 Exchange

  • Home
  • Six IRS Rules of a 1031 Exchange

Six IRS Rules of a 1031 Exchange

1. Real Property Use – Held for investment or rental

2. 45 Day Identification Period

3. 180 Day Exchange Period

4. Qualified Intermediary (QI) holds the money

5. Same Taxpayer required on title

6. Reinvest all the money, buy equal or up to pay no tax!

The 6 IRS Rules for a 1031 Exchange…

Straight or Forward Exchanges involve selling the old property first and then buying the new property. When conducting a forward exchange, you must follow these 6 simple rules:

  • Real Property Use – Both your old and new properties must qualify as held for investment or business use. If both properties pass this test, you can exchange nearly any type of real estate.
  • 45 Day Identification Period – You have 45 calendar days from the closing of your sale to list the properties you may want to buy. You can list up to 3 with no restrictions, over 3 there are IRS rules that need to be followed to the letter.
  • 180 Day Exchange Closing Period – From the sale closing date, you have 180 calendar days to close on the purchase of one or more properties from the 45-day list. There are no exceptions or extensions to either the 45 Day Identification Period or the 180 Day Closing Period deadlines.
  • Qualified Intermediary (QI) – The IRS mandates that you use a QI to prepare the legal documents for your exchange. The QI must be an independent third party, and cannot be your friend, employee, broker, or even your CPA or Attorney. The QI also holds your money so you don’t have access to it.
  • Proper Title Holding – You must purchase and take title to your new property exactly as you held title to your old property.
  • Reinvestment Requirement – To defer all of your capital gains tax, you must buy a property equal or higher in value than the one you sold. Also, you must reinvest all of the cash proceeds from your sale.