1031 Exchange Rules 

Leila Bradley, CES® | Towne 1031 Exchange, LLC

There are certain rules that you must consider when preparing to enter into a 1031 exchange. Our 1031 exchange intermediaries can guide you through each one of these rules: 

1031 Exchange Rule 1 - The relinquished and replacement properties must be held for business or personal investment. 

• Any kind of real estate can be exchanged for any other kind of real estate so long as both are held for investment. For example, a condo can be exchanged for land or a single family home. 
• The properties can be located anywhere within the United States. 
• Real property held primarily for resale is ineligible for 1031 tax deferral. 

1031 Exchange Rule 2 - Exchanges must be set up prior to the closing on the sale of your relinquished property. 
This means it is imperative to select your 1031 exchange intermediary before you close on any properties.  

1031 Exchange Rule 3 - The replacement property (or properties) must be identified within 45-days of the closing date of the relinquished property. 
If you are a Towne 1031 Exchange member, you will receive a letter notifying you of your deadlines and we will explain all the rules to you when it comes to identifying your replacement properties. We will also include the proper documentation required by the IRS to property identify your replacement properties.

• The 3 Property Identification Rule: You can identify up to 3 properties regardless of their value (sale price).  
• The 200% Identification Rule: If you identify more than 3 properties a fair market value must be listed for each property and the sum of all of the fair market values for identified property should not exceed 200% of the value of the property you sold.
• The 95% Identification Rule: if you identify more than 200% of the value of the property you sold them you must close on 95% of the value of the properties identified in order for you exchange to be successful.

1031 Exchange Rule 4 - Any replacement properties that you have identified must be purchased within 180 days after the sale of your relinquished property.

1031 Exchange Rule 5 - To fully defer your tax obligations, the value of the replacement property or properties must be equal or greater than the value of your relinquished property or properties must be equal to or greater than the value of the relinquished property.
 And, all net equity must be applied to the acquisition of the replacement property. So that means, you can't sell a property at a higher value and buy a less expensive property.

1031 Exchange Rule 6 - Title to both the relinquished and replacement properties must be held by the same taxpayer.

Learn more about Towne 1031 Exchange, LLC

Towne 1031 Exchange does not provide tax or legal advice. Please consult an accountant and/or attorney.  

The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.