These are only
a few of the key requirements and procedures that must
be followed when performing a 1031 tax-deferred exchange.
Facilitators - 1031 tax-deferred
exchanges use an independent party, often called
a Qualified Intermediary, to facilitate the exchange.
Facilitators are needed because the person deferring
taxes cannot receive the proceeds from the sale
of the property under the rules for 1031 exchanges.
The facilitator receives the funds and holds them
until the purchase of a replacement property, when
the facilitator delivers the funds directly to
escrow or the closing agent.
Exclusions - The property must not be a type specifically
excluded from 1031 exchanges. Most real property
held for investment purposes can be used in
a 1031 exchange.
Purpose - The purpose of both the property
sold and purchased must be investment or
productive use in a trade or business. The property
be the owner's residence or bought with the
of immediate resale.
Like Kind - The property purchased must be "like
kind" to the property sold. This is simple
because all real property in the US is like kind.
Value, Equity, Debt - The value, equity,
and debt of the property purchased must
to or greater
than the value, equity, and debt of the
property sold. Value is generally the
purchase/sale price. Equity is generally the portion
held "free and clear". Debt is what
is owed on the property, generally a mortgage.
Timeframe - Within
45 days from the date of closing on
the property sold, you
replacement properties. There are limits
to the number of properties that can
be identified. The
replacement property must be purchased
within 180 days from the date of closing
or the due date of your federal tax
return for the year in which the property
sold. (If you
sell a property on October 31, 2006
and do not apply for an extension to
return, the exchange period will end
on April 15, 2007 - only 166 days from