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1031 Exchange Q&A

What properties qualify for a 1031 exchange? In a 1031 exchange, real property must be exchanged for like-kind real property and real property is not considered like-kind to personal property. Qualifying Real Property Unimproved property. Improved property. Vacant land. Net-lease property. Commercial buildings. Rental properties. Farms or ranches. Resort property Industrial property Retail property Office buildings Self-storage facilities Senior-living centers Hotels or motels Restaurants Daycare facilities Tire and automotive stores Tenant In Common or TIC properties - fractional ownership properties Can you gift a 1031 exchange property? Many people are unaware that you can conduct a 1031 exchange of property that you received as a gift. If you held the gifted property for a qualified purpose, which is for investment purposes or for use in your trade or business, then you should be able to defer the federal capital gains taxes How long do you have to hold property in a 1031 exchange? The only minimum required hold period in section 1031 is a “related party” exchange where the required hold is a minimum of two years. Can I 1031 into a property I already own? Generally, no, you can not sell real property ("relinquished property") and defer the payment of your depreciation recapture and capital gain income taxes by structuring a 1031 exchange by building on real property that you already own or by paying off the mortgage on the property. What happens when you sell a 1031 exchange property? A 1031 exchange allows an investor to sell a real estate asset and purchase a "like- kind" asset without paying capital gains taxes on the sale -- even if they made a

massive profit...... That means the deferred capital gains tax on the property you sell will become due when the replacement property is sold. Can you do a 1031 exchange with family? Related party 1031 Exchanges are permitted provided you follow specific rules and guidelines issued by the Internal Revenue Service................................................................................. Related parties include, but are not limited to, immediate family members, such as brothers, sisters, spouses, ancestors and lineal descendents. Can I do a 1031 exchange on my primary residence? When you sell a primary residence, you can exclude as much as $250,000 of capital gains from taxes. With a typical 1031 exchange, you can defer capital gains taxes on the sale of a property. You'll still need to pay them eventually. But using this method, you convert the acquired property to your primary home. How much does a 1031 exchange cost? For each 1031 Exchange transaction, the average Qualified Intermediary charges an administrative fee ranging from $750.00 to $1,000.00; additional 1031 Exchange transaction typically carry additional fees ranging from $200.00 to $400.00 each. Can I take cash out of my 1031 exchange? You can take some or all of the proceeds from a 1031 exchange out of the exchange and use it for any purpose you like. There are many calculations that are necessary in order to determine whether this would be considered a taxable event. ... When can you not do a 1031 exchange? Another reason someone would not want to do a 1031 exchange is if they have a loss, since there will be no capital gains to pay taxes on. Or if someone is in the 10% or 12% ordinary income tax bracket, they would not need to do a 1031 exchange because, in that case, they will be taxed at 0% on capital gains. Does a second home qualify for 1031 exchange? A second home or a vacation home held strictly for personal use with no rental activity at all is considered a second home, and does not qualify for the tax deferral benefits of a Section 1031 exchange. The mortgage interest and real estate taxes are tax deductions on Form 1040 Schedule A of the federal tax return. How do I avoid capital gains tax on property? If you sell rental or investment property, you can avoid capital gains and depreciation recapture taxes by rolling the proceeds of your sale into a similar type of investment within 180 days. This like-kind exchange is called a 1031 exchange after the relevant section of the tax code


Can you do a partial 1031 exchange?

In a word: absolutely. You are not required to reinvest 100 percent of your sales proceeds. When you don't exchange all your proceeds, it's called a “partial 1031 exchange.” The portion of the exchange proceeds that are not reinvested is called “boot,” and are subject to capital gains and depreciation recapture taxes.

Can I move into my 1031 exchange property?

Astute real estate investors have also known that they can roll out of an

investment property thru a 1031 Exchange and replace with a qualifying residential real estate investment property They then rent it out for a year or so

(exchange professionals recommend at least one year) before moving into it.

Can Investment Property convert to primary residence?

First, if you acquire property in a 1031 exchange and then convert it to your primary residence, you must own it at least five years before being eligible for the Section 121 exclusion For example, a married couple uses a tax deferred exchange under

Section 1031 to acquire a house as investment property.

The rules regarding 1031 Exchanges investments are complex and should be evaluated with your tax advisor.

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