Things to DO in a 1031 exchange

1.   All money and proceeds received from the sale of the relinquished property, which are ear-marked for deferral must be used to acquire the replacement property/properties.

2.   The replacement property’s purchase price must be equal to or greater than the relinquished property’s net sale’s price for full deferral.

3.   The relinquished and replacement property must be “like-kind”. (see definitions)  

4.   Plan in advance for the exchange.  Talk to your accountant, attorney, broker, lender, and qualified intermediary and us.  We can help orchestrate all of these things.

5.   Try to sell before you purchase.  If an ideal 1031 replacement property is found before the relinquished property is sold, a reverse exchange (buying before selling) may be necessary.  Reverse exchanges are considered a more aggressive exchange variation since another entity must hold title to either the relinquished or replacement property for up to 180 days awaiting the completion of the exchange transaction.

Things NOT to do in an IRS 1031 exchange: 

1.   Sell and invest in property that is not “like-kind” or does not qualify.  These include: a personal residence, land under development, construction or fix/flops for resale, property purchased for resale, inventory property, bonds, notes,  property outside the USA etc.

2.   Miss your identification exchange deadlines.  The exchange will be disqualified if the 1031 replacement property is not identified within 45 days and/or the 1031 replacement property is not acquired within 180 days.

3.   Alter the manner of holding title (i.e. dissolve partnerships) during an exchange.  A change in the legal relationship with the 1031 exchange property may jeopardize the 1031 exchange.  There is a technique called “drop and swap” that may allow people in limited partnerships to still be able to obtain 1031 exchange program benefits.  Murrin Law Firm can assist with concerns about how title is held,  (via trusts, joint tenants, tenant in common, etc.)