What Are the Rules for Identifying Replacement Property?

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to defer capital gains taxes when you sell an investment property and reinvest the proceeds within certain limits.

The absolute essence of any Exchange is that something must be given away (relinquished property) and something must be received (replacement property). Property that is sold, and not exchanged, does not qualify. A property is disqualified even if the property has been sold inadvertently. Usually, the reason for the unintended sale is based upon the tax principal of “constructive receipt of funds.”

As an Exchangor, you are required to provide an “unambiguous description” of the potential replacement property on or before the 45th day after closing on the relinquished property. A legal description or property address will suffice!

If you wish to identify or purchase multiple replacement properties, you must follow one of the following guidelines:

1. Identify up to three properties of any value with the intent of purchasing at least one.
2. Identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property.
3. Identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired.

For more information on 1031 identification rules, tune into our blogcast update with David Moore below:

Click here for the full video

Wondering if an Exchange is worth it? Now you can easily find out!

If an investor does not move forward with an exchange, then the transfer of property is a sale subject to taxation. An investor that holds property longer than 1 year will be taxed at the favorable capital gains tax rate. Otherwise, the sales gain is taxed at the ordinary income rate.

Check out our capital gains calculator to determine potential taxes if you sell your property rather than exchange!

Click here to find out how much you could save.

Post-1031 Exchange Property Search

www.post1031.com offers the Real Estate Investment Community a place to freely post and browse investment property. The website is aimed at doing one thing, making real estate move!?

Why to use it... Our exchange clients have 45 days to identify that perfect replacement property that they are looking for. One place they can turn is www.post1031.com our free online resource for property listings. Clients can browse the listings and contact the brokers directly with no middle man. Clients can view their own listings with confidence and reassurance that their property is being seen.

It's 45 days to a signed deal…

Have Questions About the 1031 Exchange?

Is it okay to go down in value and reduce the amount of debt I have in the property?

An exchange is not an “all or nothing” proposition. You may proceed forward with an exchange even if you take some money out to use any way you like. You will, however, be liable for paying the capital gains tax on the difference (“boot”).

Click here for our full FAQ library.

The Guys With The Answers...

Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be.

Call today to speak to the 1031 Exchange experts at 1-800-735-1031. Thank you for reading and we will talk to you all again next week!