Advanced 1031 Exchange Strategies

Most people are aware of the fact that when you sell a long-term investment, which includes real estate, you have to pay taxes. And generally, taxes don’t come cheap.

One of the strategies investors use is the 1031 Deferred Tax Exchange or simply, 1031 Exchange. Since we’ve talked about 1031 Exchange in our previous article, today we’re going to focus more on the Advanced 1031 Exchange Strategies and what you need to know.

Below are four (4) Advanced 1031 Exchange Strategies that investors commonly use:

Delayed Exchange

This is the most common and widely used by investors doing a 1031 Exchange. A Delayed Exchange happens when the exchanger sells their property (relinquished property) first and purchase a new property (replacement property) second by using the sale proceeds.

Usually, the investor hires a third party, known as the Qualified Intermediary (QI) to facilitate the process of the exchange. After selling the relinquished property, the Qualified Intermediary holds the sale proceeds in escrow, and under 1031 Exchange Rules, a replacement property must be identified within 45 days, purchase the replacement property and complete the exchange within 180 calendar days.

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Reverse Exchange

While in most cases investors use the Delayed Exchange, there are certain situations where they are having difficulties locating a viable property to be acquired after selling the relinquished property. In cases like these, investors use the concept of Reverse Exchange.

Reverse Exchange is the opposite of Delayed Exchange. Utilizing this strategy allows the investor or exchanger to acquire the replacement property first before selling the relinquished property.?Acquisition of the parked property is the first step and afterward, the exchanger is given 45 days from the purchase date to identify the property that he/she plans to sell and 180 days from the date of purchase to complete the exchange.

Improvement or Construction Exchange

There are times that an exchanger might want to build their replacement property according to their own specifications. Construction Exchange is a perfect strategy for an exchanger to not only acquire the property but also improve it so that the value of the purchased price plus improvements get them to their target replacement. It can be either be a ground-up construction or a renovation. The exchanger, after selling the relinquished property and identifying the replacement property, is given a total of 180 days to finish the construction of the property and close the transaction to complete the exchange.?

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Simultaneous Exchange

This is a type of exchange where the sale of the relinquished property and the purchase of the replacement property happen on the same day. It can either be (a) a two-party exchange where the owners of the relinquished property and replacement property trade or swap deeds, or (b) a three-party exchange where an “accommodating party” is present that acts as an intermediary to facilitate the exchange, or (c) a Qualified Intermediary – an expert in 1031 Exchanges, is involved to facilitate the whole process of the transaction and makes sure that the exchange follows all the guidelines under the Internal Revenue Service (IRS) Tax Code.

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Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at [email protected] .

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Need help on 1031 Exchanges? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

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Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

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Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform . #LeveragedCRE