Tips for Completing a Successful 1031 Exchange

A 1031 exchange is a powerful tool for real estate investors looking to defer capital gains tax on the sale of investment properties. Understanding the basics of a 1031 exchange, investors can strategically navigate the complexities of this process to maximize their investment potential.

Corcapa 1031 Advisors recommends the following for a successful 1031 exchange, ensuring that you are well-prepared to take advantage of its benefits.

Grasping ‘Like-Kind’ Property

At the heart of the 1031 exchange is the concept of ‘like-kind’ property. This term broadly encompasses various types of real estate, allowing investors to exchange properties of different kinds, as long as they are held for investment or business purposes. For instance, an apartment building can be exchanged for a commercial property, provided both are used for investment.

Stay Connected

Be in communication with your Corcapa 1031 Advisors representative well ahead of your proposed relinquished property sale closing date so we can begin to research and identify potential replacement property.

Select a Qualified Intermediary

Be sure to select and assign a Qualified Intermediary “QI” or Accommodator to receive the sale proceeds from escrow. Corcapa can recommend QIs for you. Be sure to research the financial backing of QIs before selecting them. Be especially careful to NOT take personal receipt of the funds or your exchange will be invalidated.

Adhering to Deadlines

Timing is critical in a 1031 exchange. Investors must adhere to strict deadlines: 45 days to identify potential replacement properties and 180 days to complete the purchase. Missing these deadlines can result in the loss of tax deferral benefits, making it vital to stay organized and proactive throughout the process.

From the day you close your relinquished property, you will have 45 days to identify your replacement property(ies). This identification must be in writing, and can follow one of three possible identification rules:

  • 3-property rule:
    Up to three properties are identified no matter what their value.
  • 200 percent rule:
    Any number of properties is identified as long as their combined fair market value (FMV) does not exceed 200% of the FMV of the relinquished properties.
  • 95 percent rule:
    Any number of properties are identified no matter what the aggregate FMV, provided 95% of the value of the identified properties is acquired.

The investor must close on the identified replacement property(s) within 180 days from the close date of the relinquished property. This is an additional 135 days from the end of the 45 day period in which to close on your replacement property(ies).

Additionally, for full tax deferral you must purchase equal or greater purchase price, equal or greater debt and reinvest all cash.

Please review the IRS publication here for further details: https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

Schedule Your Consultation

Corcapa 1031 Advisors and its team members will help guide you through the 1031 exchange process successfully. Contact us at (949) 722-1031 or schedule a consultation to discuss your specific goals.

SCHEDULE CONSULTATION

This foregoing information is for educational purposes only. Formal offering inquiries must refer to the Private Placement Memorandum for specific and detailed information on all risk factors. This email has not been screened in regard to tax risk, sponsor risk or economic risk.  Corcapa 1031 Advisors does not provide legal or accounting advice; you are advised to consult with your own legal and accounting professionals before making any investment decision.

Securities offered through DAI Securities, LLC, Member FINRA/SiPC

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