Types of 1031 exchange rules
The following methods can be used, whether you are exchanging
from one property to another, or are working with multiple assets.
Delayed Exchange
The delayed exchange is
the most common method in use. Through the delayed exchange, you sell your
property, find a like-kind replacement property within 45 days
(“identification period”), then close on the replacement property within 180
days (“exchange period”).
Simultaneous
Exchange
The simultaneous exchange is a direct property swap,
allowing you to exchange your asset’s deeds and additional documents with
another party, through ownership transfer.
Improvement
Exchange
Let’s say the following happens. You’ve identified the ideal
asset for an exchange, but it doesn’t meet the “equal or greater value”
mandated by the Internal Revenue Service (IRS) 1031 exchange rules.
In this situation, an improvement exchange – also known as a
“construction” or “build-to-suit” exchange – allows you to enhance that
replacement asset’s value, through the use of the exchange equity.
Reverse Exchange
Enter the reverse exchange, which lets you purchase that
replacement property, before the property you’re selling closes.
Though the reverse exchange can be
ideal in a hot market with scarce inventory, it can be difficult to carry out,
without assistance from a Qualified Intermediary (QI)or other
professional.
Personal Property
Exchange
Finally, real property is not
the only asset that can be exchanged. Personal property can also fall under the
IRC 1031 code, as long as you exchange into a like-kind replacement property.
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