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1031 Property Exchange Requirements


1031 Property Exchange Requirement

To fully defer all capital gains taxes, all 1031 property exchanges must meet four separate requirements:

  • First, 100% of all proceeds from the sale of the first income property must be reinvested into the second, replacement income property.

  • Second, the amount of equity ( income property value minus loan value) of the replacement income property must be equal to or greater than that of the relinquished income property.

  • Third 1031 Property Exchange Requirement: The third requirement of Section 1031 property exchanges is that you must use a Qualified Intermediary (QI). The QI prepares the exchange documents, holds the cash proceeds from the sale, and should answer any questions you may have during the exchange.

  • Fourth 1031 Property Exchange Requirement: Both relinquished and replacement income property must be held for productive use in a trade or business or held for investment and income property must be like-kind. Like-kind refers to the nature of the income property. The IRS definition of Like-Kind is any income property held for productive use in a trade or business or held for investment purposes.

    In order to complete your next 1031 property exchange or tenants in common exchange, contact us today. We can put you in contact with a specialized 1031 property broker at no cost to you.