When you’re looking to keep your taxes working for your own benefit with a 1031 exchange, it’s important to understand the requirements that need to be met. There are six basic requirements of a 1031 exchange. All six of these must be met in order for a 1031 exchange to be successful. In the first part of our seven-part blog series on 1031 exchange basics, I’ll go over the six basic requirements.
The Six Basic Requirements of a 1031 Exchange
- Held for Investment
- 45 Day Identification Rule
- 180 Day Rule
- Qualified Intermediary Requirements
- Title Requirements
- Reinvestment of Cash / Equal or Up Rule
I can’t stress enough that all six requirements need to be met. Even if you meet five of the six, the 1031 exchange will still fail. This type of exchange is authorized in the tax code and overseen by the internal revenue service (IRS). While they do have to allow exchanges and follow their code, they don’t have to make it easy. That’s why it’s important to make sure you understand and have a plan in place to meet all six basic requirements of a 1031 exchange before you proceed.
Within the six requirements, you’ll find that there is a requirement for the type of real estate. You’ll also have to follow certain timing rules such as the 45-day rule and the 180-day rule. There is a requirement for the use of a qualified intermediary to assist in the exchange. There are also special requirements surrounding the title as well which include how the title must be held. Finally, you’ll have to make sure you meet the reinvestment requirements. This specifically deals with what you have to put back in, or reinvest, to make sure that you will get the full amount of tax deferral.
In this seven-part blog series on 1031 exchange basics, I’ll cover all of the six requirements. This includes what they are, how they work, and what you need to do in order to achieve a successful 1031 exchange. You can also find this information via the Video Training link at www.the1031investor.com.
This article first appeared on my Bigger Pockets member blog.