1031 Exchange Requirements

The 1031 Exchange Explained - What Are The 1031 Exchange Requirements?

The 1031 exchange requirements are strict and complex, and it is always advisable to consult a tax expert or qualified intermediary to get professional advice on your particular circumstances.  Under the section 1031 exchange rules, certain requirements and time frames must be met in order to qualify for a 1031 tax deferred exchange, in which payment of capital gains tax can be deferred by reinvesting in like kind real estate.

1031 exchange properties are deemed to be of like kind if they are of the same nature or character, regardless of their quality or grade.  Following the rules of the 1031 exchange requirements, both the relinquished and replacement properties must be either trade or business, rental or investment property or vacant land, which must be held for at least one year and a day to qualify. 

There are also tight time constraints on completing 1031 exchanges.  Investors must identify a new replacement property within 45 days of the transfer of their relinquished property, and the exchange process must be completed within 180 days of the transfer.  As well as the 1031 deferred exchange, other options to consider include a Tenant in Common or TiC exchange or a 1031 reverse exchange.  A professional tax advisor or qualified intermediary can advise on the options available depending on your individual requirements.