This is the first of the two “1031 Exchange Timelines.” However, if you sell the Relinquished Property as an individual, and you buy the Replacement Property in the name of an LLC in which you are the sole member, and you have elected to be treated by the IRS for tax purposes as a Disregarded Entity, the seller and buyer are considered to be the same under the 1031 Exchange Rules.Ħ. It can be your name as an individual, or an LLC, a C or sub-S corporation, a Partnership, etc. The name that goes on the deed when you receive the Replacement Property must be the same name that was put on the deed for the Relinquished Property when you bought it. If you take out part of the Net Sales Proceeds at the Closing, that part will be taxable to you as “boot.”ĥ. The 1031 Exchange Rules require that all of your Net Sales Proceeds be used in the purchase of your Replacement Property. This is the amount that you are entitled to receive at the closing on the sale of your Relinquished Property. If it is less, you can still qualify for a Partially Tax Deferred Section 1031 Exchange.Ĥ. The price that you pay for the Replacement Property must be equal to, or greater than, the sales price of the Relinquished Property in order to qualify for a Total Tax Deferral. The Replacement Property, however, must be property “which is to be held either for productive use in a trade or business or for investment.” That refers to what you use the property for after you buy it.Īn explanation of which properties meet this definition can be found at Dealer Property, and expanded on at Intent.ģ. The next 1031 Exchange Rule requires that the Relinquished Property be “property held for productive use in a trade or business or for investment.” That refers to what you are using the property for right now. This does not mean that the real properties are “like” in appearance, but are “like” in their use or characterization, such as both being used as business or investment properties.įor personal properties, it does actually mean that they are like in appearance, as well as like in almost every other way.Ģ. The real properties must be “like-kind” and the personal properties must be “like-kind” to each other. But the real property includes the items of personal property that would be ineligible if they were treated alone. The Tax Cuts And Jobs Act (TCJA) eliminates the use of the Section 1031 Like Kind Exchange for just personal property. They are items with a depreciable life of 20 years or less. These are items like the furniture and fixtures, and heating and air conditioning systems. Tangible personal property is the portion of the real estate that is not part of the basic structure. The personal property we are talking about here is “tangible personal property” and not your personal possessions. The property that you buy, your Replacement Property, will be either real property, or it will be real property combined with personal property. The property that you sell, your Relinquished Property, will be either real property, or it will be real property combined with personal property. and then there are seven additional rules that will expand your understanding of the Section 1031 process.ġ.) Like Kind Property. There are nine basic rules that you need to guide you. The Section 1031 Exchange Rules that you need are the ones that I will list below.Īnd if you scroll down the page, I will show you how they work, including actual transactions.Īt this point, before you place all of that confidence in me, you should check my credentials at About. If you are in a contested situation with the IRS, you should read the Section 1031 Exchange Rules, which are contained in Internal Revenue Code Section 1031(a)(1) and Treasury Regs Section 1.1031(a)-1.īut if you are just learning the 1031 Rules so that you can do your own 1031 Exchange, I will show you all of the Rules that you need to know. COM 1031 EXCHANGE RULES AND DELAYED EXCHANGE
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