IRS 1031 Exchanges: What You Need to Know
If you're looking to sell and buy commercial properties for business or investment purposes, taxes can easily become an expensive part of the equation. Fortunately, the IRS 1031 program allows property owners to defer their taxes from a property sale, as long as they use the proceeds to invest in a "like-kind" property within a specific period of time.
Who Qualifies for a 1031 Exchange?
As long as you (or your corporation, LLC, or partnership, or trust) has property that's primarily being used for a commercial purpose, it can qualify to be part of a 1031 exchange. Personal and vacation homes usually do not qualify.
How Long Do You Have to Exchange the Properties?
For traditional 1031 exchanges, property owners have 45 days from their initial property sale to identity potential exchange properties, and fully purchased within 180 days of the initial property sale (or, by the income tax due date of the year of the initial property sale, whichever is first.) For those who may need longer to locate suitable exchange properties, or who want to complete exchange transactions with multiple properties at once, they may want to consider a deferred or a reverse exchange.
Typically, for these kinds of transactions, owners/investors will want to use an expert, often referred to as an exchange facilitator or an exchange accommodation titleholder, can guide them through the process and may be able to hold the title to the property during part of the transaction.