1031 Basics
APX 1031 EXCHANGE
OUR SERVICES
Types of 1031 Exchanges
A properly structured 1031 ‘Like-Kind’ Exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gains.
IMPROVEMENT EXCHANGE
This structure allows you to use exchange proceeds from the sale of the relinquished property to acquire the replacement property and proceeds of the sale to make improvements to the replacement property (build on the land or improve the existing property). Improvement Exchanges can be combined or used together with either a Reverse or Delayed/Forward Exchange structure.
1031 BASICS
Non Like-Kind Property
Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment.
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Primary Residence - see IRS Section 121, visit: www.irs.gov/taxtopics/tc701
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Second Homes
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Vacation homes (for personal use)
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Ownership interest in an entity (Partnership Interest, Membership Interest in LLC, Corporate Stock)
A properly structured 1031 ‘Like-Kind’ Exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gains.
IRS SECTION 1031(A)(1) STATES:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.“
1031 BASICS
What Type of Property Qualifies for a Like-Kind Exchange?
Both the relinquished property you sell and the replacement property you buy must meet certain requirements. Both properties must be held for use in a trade or business or for investment.
Like-Kind Property
Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality.
Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. However, real property in the United States is not like-kind to real property outside the United States.
Examples of Like-Kind Property
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Single Family Residential (Rental/Investment)
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Multifamily Residential (2-4 Units)
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Multifamily Commercial (5+ Units)
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Vacant Land, Raw Land, Undeveloped Land, Farmland
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Retail Buildings, Shopping Centers, Neighborhood Centers, Single and Multi-Tenant Net Leased
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Office Buildings
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Mixed-use Properties
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Industrial, Flex and Warehouses
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Fractional Ownership: Tenant-In-Common (TIC), Delaware Statutory Trust (DST)
1031 EXCHANGE
Time Limits & Identification
Timing
IDENTIFICATION PERIOD (45 DAYS)
You have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be unambiguous, in writing, signed and returned to the Qualified Intermediary on or before midnight of the 45th day.
EXCHANGE PERIOD (180 DAYS)
The replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. Please consult your Tax Advisor or Accountant.
Identification
The identification rules are as follows (within 45 days of the closing of the relinquished property):
3-PROPERTY RULE:
The Exchanger can identify a maximum of three (3) like-kind properties without regard for the total aggregate value of the properties identified.
200%-RULE:
The Exchanger can identify as many like-kind properties as they wish as long as the total aggregate value of all of the properties identified does not exceed 200% of the sale price of the relinquished property.
95%-RULE EXCEPTION:
If the Exchanger identifies more than three (3) properties and exceeds the 200% limitation, the Exchanger must purchase 95% of the aggregate value of the identified properties.