Timing The Exchanges
- Identify the property you wish to buy within 45 days of the sale of the original property.
- Close on the property within 180 days.
- Purchase a property that is of like kind to the one you sold.
- Taxpayers must file a Form 8824 along with their tax return to report the 1031 exchange.
Can a 1031 exchange be used to buy land?
You can buy untouched or developed land with a tax-deferred exchange as long as you purchase qualifying like-kind property, and it’s held for productive use in trade, business, or investment. Playing by the rules and with careful planning, you can defer your taxes when you buy land with a 1031 exchange.
How does a 1031 exchange work with rental properties?
The intermediary holds the funds after one property is sold in the 1031 exchange and uses that money to buy the new replacement property. When doing a 1031 exchange, the owner must identify the property he is exchanging and declare it before the sale.
Can a 1031 exchange defer capital gains taxes?
A 1031 Exchange allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long as another “like-kind property” is purchased with the profit gained by the sale of the first property.
How long does it take to do a 1031 exchange?
The property owner has 45 calendar days, post-closing of the first property, to identify up to three potential properties of like-kind. After the properties are identified, the investor has 180 days to make the purchase and initiate the exchange OR by the due date of the income tax return with extension,…
What does 1031 mean for like kind property?
In a typical IRS qualified §1031 like-kind property exchange, investors defer paying capital gains, depreciation recapture, and income taxes on commercial investment property when it’s sold. Like-kind does not mean identical property, but it certainly excludes (with a twist) exchanges for primary residences.
