Frequently Asked Questions

 A 1031 exchange, also known as a like-kind exchange, is a transaction in which an investor sells a property and uses the proceeds to purchase a similar property, while deferring the payment of taxes on the gain from the sale.

To qualify for a 1031 exchange, the properties being exchanged must be held for investment or used in a trade or business, and must be of "like-kind." Additionally, the exchange must be completed within certain timeframes, known as the "identification period" and the "replacement period."

A Qualified Intermediary (QI) is a neutral third party that facilitates a 1031 exchange by holding the proceeds from the sale of the relinquished property and disbursing the funds to purchase the replacement property. Using a QI is required to complete a 1031 exchange and ensure it complies with IRS rules.

You must identify potential replacement properties within 45 days of the sale of the relinquished property. Then, you have 180 days from the date of sale or the due date of the tax return for the year in which the sale occurred, whichever is earlier, to complete the acquisition of the replacement property.

Yes, although this adds a layer of complexity and requires the utmost attention to detail. 

Yes, as long as the improvements are completed within 180 days of the sale of the relinquished property and the total cost of the improvements does not exceed the total proceeds from the sale of the relinquished property. 

Yes, this is known as a "partial exchange" or "improve and hold" exchange, where the investor identifies multiple properties and acquires less than all properties identified.

No. There is no limit to the number of times you can do a 1031 exchange, but there are certain rules and regulations that must be followed in order for the exchange to qualify for tax deferment. 

Yes, a rental property can qualify for a 1031 exchange as long as it is held for investment or used in a trade or business. 

If you do not complete a 1031 exchange within the required timeframes, you will be subject to taxes on the gain from the sale of the relinquished property. Additionally, you may face penalties and fines from the IRS.

While 1031 exchanges offer numerous benefits, there are several potential pitfalls that investors must be aware of to ensure a successful exchange, including failure to meet deadlines, property identification challenges, financing & debt considerations, inadequate due diligence, discrepancies in property values, limited property exchange options, and change in investment intent. Learn more on our blog.