What are the rules & requirements of 1031 exchanges?
There are 5 key rules and requirements when it comes to 1031 exchanges.
1. Same taxpayer: The individual or LLC selling the existing property is the same one receiving the new property.
2. 45-day identification period: The seller has 45 days after closing on the older property to identify the “like-kind” properties to exchange for. You can find the three rules on property identification here.
3. 180-day exchange period: Within 180 calendar days after the first property’s closing, the new property must be purchased.
4. Trading up: The single replacement property, or the total value of multiple properties purchased, must be greater than the property being relinquished.
5. Sold as an investment: 1031 exchanges are only for investment property. This is usually demonstrated by holding your property for more than a year. However, exchanges in a shorter time period can be done, but it’s recommended that you document your intent to hold as an investment, in order to avoid getting audited.