Requirements of a 1031 Exchange

In order to complete a 1031 exchange:

1. Both the relinquished and replacement properties must be held for productive use in a trade or business or for investment. Therefore, most personal property does not qualify for a 1031 exchange.

2. Both the relinquished and replacement properties must be of “like-kind”. All real property is “like-kind.” For example, a farm can be exchanged for an apartment building.

3. There must be an “exchange” as opposed to a “purchase and sale.” In other words, the properties must be exchanged as opposed to receiving the cash from the sale of one property and using it to buy another property.

4. The taxpayer who sells the relinquished property must also purchase the replacement property. The only exception is that the taxpayer may acquire the replacement property as part of an entity if the taxpayer is the sole member of the entity. A single member entity can be deemed a disregarded entity in most cases.

5. The taxpayer may not acquire the replacement property from a related party. A related party could be a parent, child, spouse, or corporation or entity in which the taxpayer or immediate relatives own greater than 50%.

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.