5 Commandments of 1031 Exchanges

5 Commandments of 1031 Exchanges.

A 1031 exchange is the swap of one investment property for another like-kind property without paying taxes. It’s the cheat code to building wealth via real estate.

To master this cheat code, you must know the rules. 90% of what you need to know can be distilled into these 5 Commandments:

Commandment 1

The property must be held for business or investment purposes (see here).

Commandment 2

To defer all tax, Exchangers must purchase a property of equal or greater value than the net selling price of the relinquished property (see here).

Commandment 3

Within 45 days following the close of your first transaction, Exchangers must identify, in writing, up to three possible replacement properties (you can identify more than three, but there are additional rules if you do). Only identified properties qualify for the exchange (see here).

Commandment 4

Exchangers have 180 days to complete both sides of their exchange (the buy and sell). This deadline is firm, regardless of whether the 180th day falls on a Saturday, Sunday or Holiday (see here).

Commandment 5

Exchangers must use a Qualified Intermediary to facilitate their 1031 exchange (see here).

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