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Types of 1031 Exchanges

March 09, 2018

 

THE SIMULTANEOUS EXCHANGE: A simultaneous exchange occurs when the relinquished and replacement properties close at the same time. This type of exchange is normally uncommon, since it is unrealistic to have two people who want to swap the exact same properties. However, in the event that a simultaneous exchange occurs, a qualified intermediary (QI) is still necessary to ensure that the exchanger reinvests all of the proceeds from the relinquished property into the replacement property.

THE REVERSE EXCHANGE: If the exchanger must purchase the replacement property before the relinquished property is sold, it is still possible to complete a 1031 exchange. This is called a reverse exchange, and is generally more complicated. Please contact us to further discuss reverse exchanges.

THE DELAYED EXCHANGE: The delayed exchange is the most commonly used 1031 exchange. This process normally involves three steps:

Step 1: Sale of the Relinquished Property

Before closing, the exchanger must obtain the services of a QI. Generally within two business days, we will prepare the exchange agreement(s) and closing instructions. The deed for the relinquished property will be given to the buyer, and the proceeds from the sale will be delivered directly to us, so that the exchanger does not have access to the funds.

Step 2: Identification of the Replacement Property

The exchanger must identify a replacement property within 45 calendar days after the relinquished property has closed. There are three rules that limit the number of properties the exchanger can identify:

1. 3-PROPERTY RULE: the exchanger may only identify three properties, or

2. 200-PERCENT RULE: the exchanger may identify as many properties as desired, as long as the aggregate fair market value does not exceed 200% of the fair market value of the relinquished properties, or

3. 95-PERCENT RULE: the exchanger may identify as many properties as desired, provided that 95% of the value of the identified properties is acquired.

Step 3: Purchase of Replacement Property

The exchanger has 180 calendar days from the sale of the relinquished property to acquire a like-kind replacement property. We will purchase the replacement property for you with the exchange proceeds.

 

 

 

 

 

 

Prior results do not guarantee a similar outcome. All information posted is general advice only, based upon the rules of NYS, and is not intended to be a substitute for personal legal advice. Although information provided here was accurate as of the date of posting, laws change frequently and rules in other jurisdictions may differ. Therefore, readers should not rely upon these postings but should consult an attorney to discuss their specific factual situation.

175 East Shore Road, Suite 270,  Great Neck, NY 11023  Phone: (516) 482-1186