The 1031 exchange (also known as a like-kind exchange) allows an investor to avoid capital gains on selling a productive real estate or business asset by exchanging it for a similar property, provided specific IRS conditions exist. You can also swap until you drop since 1031 exchange properties for sale have no restrictions on how many times you can use them.
Section 1031 of the Internal Revenue Code sets forth the rules for exchanging. The following are the essential points of a 1031 exchange:
- The properties are similar in nature, character, or class,” meaning purchased for investment purposes.
- For the exchange to occur, a third-party intermediary is required.
- It is necessary to find a replacement property within 45 days.
- It is essential to replace the relinquished exchange property within 180 days.
- Any outstanding debt plus equity in the old property must be equal to or greater than the replacement property’s price.
There are two types of 1031 exchanges: simultaneous and deferred, but deferred exchanges are most common because of their flexibility. During a deferred exchange, an investor can sell a current property but receive a 45-day and 180-day grace period for finding and closing on a replacement home. Furthermore, the investor must employ a qualified intermediary to hold net proceeds from the relinquished property before investing in the replacement property.
What to Look for in Replacement Properties for 1031 Exchanges?
Finding a property exchange that meets your needs, provides profit, and aligns with your principles is possible. Those uncertain about what to look for can consult an agent or broker.
Time Is Limited
During this time, a 1031 exchange specialist can help you if you plan to sell your property before 45 days. Once you’ve found the right property, a real estate agent can help you finalize the purchase. Finding the right one is one of the most challenging aspects of buying a property.
It will take 180 days for you to finalize the purchase of the property after you have decided on it. The property may need repairs, so you may want to inspect it, or you may want to tour the facility at this time.
There are many options for finding a new property and selling your current one. Talk to a real estate agent or broker if you have questions about which options best meet your needs and desires. You may be able to swap a vastly different type of property from your previous one since the rules for property swapping are relatively loose. You might want to step back and take a look at the entire market. You may be able to find a cheaper property outside of your usual type that meets your needs better.
Having a real estate broker guide you through the available properties in your area will make choosing the property easier that best meets your needs. If you have 1031 exchange properties for sale, we will help you find the right replacement property. You can download the list of 1031 exchange properties for sale by filling out the form on our website.