The property sold must have been held for business or investment purposes. After you sell the business or investment property, you must identify a replacement property or properties on or before 45 days from the date you sold the original investment property. The funds from the sale of the property must be held by a 1031 exchange intermediary.

You can identify more than one property as the replacement property. However, the maximum number of replacement properties that you may identify without regard to fair market value is three properties. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. Note that you don't have to close on all the properties you identify. You can name several if you're not sure what will close, or not close, but you have to observe the rules in terms of the value of properties you identify.

Time Limits For Completing the 1031 Exchange

Exchanges must be completed within strict time limits. The Exchanger has a set 45 days from the date the relinquished property closes to "Identify" potential replacement properties.

The purchase of the 1031 replacement property must be completed within 180 days after of the close of the relinquished property, or prior to filing the tax return for the tax year in which the property was sold. After the initial 45 days has passed, the Exchanger may not change their Property Identification list and must purchase at least one of the identified replacement properties or the exchange fails!

In conclusion, the 1031 tax-deferred exchange is an excellent tool to maximize your wealth by allowing you to reinvest the dollars that you would otherwise be paying to the IRS. However, having a qualified 1031 exchange intermediary such as LegalCreation is an important element to fully taking advantage and complying with 1031 exchange policies.

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