Is there a time limit to identify replacement property?

You have 45 days after the sale of your relinquished property to identify your replacement property(ies). Identification of replacement properties must be unambiguous, using a legal description or physical address. It must be in writing, dated, signed, and received by your QI within 45 days. The 45-day requirement is strictly enforced with no option for extension.

How many properties can I identify?

The IRS provides three rules by which you can identify your replacement property(ies). The most common being the 3-property rule, simply put you can identify three properties. The 200% rule allows you to identify more than three properties so long as the fair market value of all properties does not exceed 200% of the sales price of your relinquished property. Lastly the 95% rule states that should you over-identify the first two rules than you have to receive 95% in value of what was identified.

Can I do an exchange with more than one property?

Yes, you are allowed to exchange multiple properties. You can relinquish multiple properties for one replacement property, or vice-versa you can exchange one relinquiched property for multople replacement properties. The key is you want your replacement property(ies) to be equal or greater in value than your relinqished property(ies) to avoid taxable boot.

Does the name of the title for my replacement property matter?

Yes, with few exceptions, the title to the replacement property must be in the same name, or entity, as the reqlinquished property was held.

What is a Reverse Exchange?

A reverse exchange is an exchange where the replacement property is purchased before the relinquished property is sold. Reverse Exchanges are more complex and your QI should be involved in all steps and planning to ensure it is completed in accordance with IRC § 1031.

Is there a time limit to purchase the replacement property?

You have 180 days after the sale of your relinquished property to purchase your replacement property(ies). The 180-day requirement is strictly enforced with no option for extension. Additionally, your replacement period could be shorter if your tax return due date is prior to the expiration of the 180 days, if that is the case you will want to file an extension on your tax filing.

Am I required to purchase all of the properties I identify?

You have to option to purchase one or all of the properties you identified, you are not required to purchase all identified properties. Identifying more than one property just provides you with more options to ensure you have a replacement property within the 180-day exchange period.

What property is “Like-Kind” to my property?

For a 1031 exchange to be valid, your properties must be like-kind. As it pertains to real estate, all real estate is like-kind to other real estate. Some examples would include: an apartment complex exchange for a cell tower easment; an office building for farm land; or a rental home for water rights. Generally speaking, the only real estate that does not qualify under a 1031 exchange is a vacation home and personal primary residency.

Am I allowed to use exchange funds for improvements on replacement property?

Yes, as long as your exchange is structured properly. The best method to accomplish this is to have a Special Purpose Entity acquire title to the replacement property, the Special Purpose Entity will complete the improvements and then you, as the exchanger, will acquire the replacement property from the Special Purpose Entity through a built-to-suit or improvement exchange.