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1031 Tax Deferred Exchange Frequently Asked Questions (1031 Exchange FAQs)

The following 1031 Tax-Deferred Exchange Frequently Asked Questions (FAQs) have been compiled by our team of 1031 Exchange Experts and Advisors to provide our clients and their advisors with answers to the most commonly raised questions and issues regarding Section 1031 of the Internal Revenue Code.

Is 1031 Exchanging property a new concept?

What are the benefits of doing a 1031 Tax-Deferred Exchange versus a sale?

What is a 1031 Tax-Deferred Exchange?

Is there ever a situation in which the 1031 Tax-Deferred Exchange is not a good idea?

What are the different 1031 Tax-Deferred Exchange structures?

What type of property can be exchanged under Section 1031?

Can I 1031 exchange property held in a Title Holding Trust?

Can I 1031 exchange out of property held in one Title Holding Trust and acquire replacement property held in a different Title Holding Trust or not held in a Title Holding Trust at all?

Can I sell rental property and pay off a loan on another property through a 1031 exchange?

Can I structure a tax-deferred exchange on vacation property or my second home? 

What is a Qualified Intermediary (Accommodator) and do I need one?

What does Exeter 1031 Exchange Services do as the Qualified Intermediary (1031 Exchange Accommodator or 1031 Exchange Facilitator)?

What deadlines apply to a 1031 Tax-Deferred Exchange transaction?

How do I identify my potential replacement properties?

How do I identify a fractional interest or partial interest, such as a tenant-in-common investment property, as my like-kind replacement property? 

Can I back-date my identification form to be within the 45-day period?

When should I retain Exeter 1031 Exchange Services, LLC?

Will doing a 1031 Tax-Deferred Exchange make the transaction more difficult?

Do I have to spend all of the 1031 Tax-Deferred Exchange proceeds?

When can I receive my 1031 Tax-Deferred Exchange funds if I do not reinvest 100%?

Can I carry back a note when I sell my property (seller carry-back note)?

Can I sell more than one relinquished property in the same 1031 Tax-Deferred Exchange?

How long do I have to hold the relinquished or replacement property?

What are the fees and/or costs involved with a 1031 Tax-Deferred Exchange?

My escrow closed yesterday. Can I still do a 1031 Tax-Deferred Exchange?


Can the 45- and 180-calendar day tax-deferred exchange deadlines be extended?


If I sell property that was held in my individual name, can I acquire my like-kind replacement property in my corporation?

Can corporations, general and limited partnerships and limited liabilities companies complete 1031 Tax-Deferred Exchanges?

Can shareholders in a corporation, partners in a partnership or members in a limited liability company structure and complete a tax-deferred exchange?

My lender is insisting that I acquire my like-kind replacement property in a limited liability company even though I sold my property as an individual. Will my exchange still qualify for tax-deferred treatment?

Can I buy shares in a Real Estate Investment Trust (REIT) as my like-kind replacement property?

Can I combine a Section 1031 Exchange with a Section 121 Exclusion?

What are the common 1031 exchange terms, phrases and definitions?

What is a Tenant-In-Common Investment (TIC Investment)

Can related parties complete a tax-deferred exchange?

Can I 1031 Exchange by selling a rental property and paying off my mortgage on another property?

Didn't Find Your Question?

Do you have a 1031 Tax-Deferred Exchange question and can't seem to locate an answer? Ask the team of 1031 Tax-Deferred Exchange specialists at Exeter 1031 Exchange Services, LLC and we WILL get you an answer.  Email your questions or comments to Exeter 1031 Exchange Services, LLC at ASK Exeter, or contact one of our national branch office locations for assistance.

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Our Senior 1031 Exchange Specialists are also available 24 hours a day, 7 days a week, 365 days a year to answer your 1031 Tax-Deferred Exchange questions.  Simply click here to schedule an immediate call back from one of our Senior 1031 Exchange Advisors.


Here Are Your 1031 Tax Deferred Exchange Answers!


Is 1031 exchanging property a new concept?

No. Section 1031 of the Internal Revenue Code was first introduced in 1921. The purpose or intent behind a 1031 exchange is to encourage you to reinvest 100% of your net proceeds into like-kind replacement property when you sell qualifying property.  You might be interested in reading the History of Section 1031 of the Internal Revenue Code


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What are the benefits of doing a 1031 exchange versus a sale?

1031 exchange transactions are one of the last remaining strategies available to defer the recognition of capital gain and depreciation recapture income taxes on the sale or disposition of qualifying property.

Typically, by selling or disposing of your investment property you will trigger Federal and state capital gain and depreciation recapture income taxes, which will leave you with much less to reinvest. This makes it extremely difficult for you to trade up in real estate value, increase your cash flow and ultimately your net-worth when you have to recognize and pay these income tax liabilities.

By completing a 1031 exchange you can defer your capital gain and depreciation recapture income tax liabilities and therefore keep 100% of your net proceeds from the sale of your investment properties available to reinvest in other like-kind replacement properties, especially to trade up in value and improve your cash flow.

The 1031 exchange allows you to sell or dispose of and subsequently acquire properties in order to reallocate, consolidate or diversify your investment portfolio without paying tax on any capital gain or depreciation recapture taxes.


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What is a 1031 Exchange?

Section 1031 of the Internal Revenue Code allows you to dispose of certain real or personal property and defer the payment of your federal, and in most cases, state depreciation recapture and capital gain income tax liabilities by exchanging the real or personal property (relinquished property) for qualified use "like-kind" property (replacement property).


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Is there ever a situation in which the 1031 Exchange is not a good idea? 

Yes, absolutely.  1031 Exchanges are not for everyone and may not be appropriate under certain circumstances.  You would generally not want to structure a 1031 Exchange if you have an actual loss on the sale of your real property because you will want to recognize the loss for income tax purposes.  Suspended passive activity income tax losses may be used to offset certain gains as well, so you may decide not to structure a 1031 Exchange or to structure a partial 1031 Exchange in order to use up some of your accumulated passive activity income tax losses.

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What are the different 1031 Exchange structures?

Simultaneous (Concurrent) Exchange:

The exchange (disposition) of the relinquished property (sale property) and the purchase of the like-kind replacement property occurs at the same time.

Forward (Delayed) Exchange:

This is the most common structure or form for most 1031 exchange transactions today. A Forward (Delayed) Exchange occurs when there is a time delay between the transfer (conveyance) of the relinquished property (sale property) and the purchase of the like-kind replacement property.  A Forward (Delayed) Exchange is subject to specific time limits, which are set forth in Section 1.1031 of the Department of the Treasury Regulations.

Reverse Exchange:

A transactional structure where the like-kind replacement property is purchased first, prior to transferring (conveying or selling) the relinquished property to the actual buyer. The Internal Revenue Service provided guidelines (safe harbors) for structuring reverse 1031 exchange transactions, as outlined in Revenue Procedure 2000-37, effective September 15, 2000. Reverse 1031 exchange transactions structured pursuant to this Revenue Procedure are considered to be "safe-harbor" reverse 1031 exchange transactions and those structured outside of the Revenue Procedure are considered to be "non-safe harbor" reverse 1031 exchange transactions and should only be completed with competent legal counsel. Reverse 1031 exchanges are also referred to as parking transactions or parking arrangements.  You can read an overview of reverse 1031 exchanges or learn more by reading an Introduction Safe Harbor to Reverse 1031 Exchanges.

Build-to-Suit (Improvement or Construction) Exchange:

This technique allows the taxpayer to build on, or make improvements to, the like-kind replacement property, using the exchange proceeds before they actually take title to the property.

Personal Property Exchange:

Personal property can also be exchanged for other personal property of like-kind or like-class as long as the personal property has been held for investment, income production (rental) or use in a business.


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What type of property can be exchanged under Section 1031? 

Qualifying use property is property that has been or will be held for income production (rental), investment or used in a trade or business. Your personal residence and vacation home are not qualifying use property and do not qualify for 1031 exchange treatment, although they may qualify for Section 121 Exemption treatment.

Assuming the property satisfies the qualified use test, then the property must satisfy the "like-kind" test. Real property is "like-kind" to real property, so as long as your are exchanging real property for real property it will qualify as "like-kind" for 1031 exchange treatment.

Among the types of real property that are eligible for 1031 exchange treatment are raw land, single-family homes, hotels, multifamily dwellings, factories, commercial office buildings, shopping centers, farmland, leases of 30 years or more, quarries and oil fields. In general, any type of real estate may be traded for another type of real estate as long as it satisfies the qualified use test.

"Like-kind" rules for personal property are more restrictive than those for real property. Aircraft, automobiles, trucks, office equipment, furniture, machinery, computers, musical instruments, billboards, franchise licenses, television licenses, copyrights, collectibles and oil and gas drilling equipment are just a few examples of personal property that qualify for 1031 exchange treatment. You can exchange a small aircraft for another small aircraft, but not a small aircraft for a large aircraft such as a 747-300.

It is important to consult with your legal and tax advisor to determine whether your property will satisfy the qualified use and like-kind tests, especially in the areas of personal property 1031 exchange transactions.


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Can I 1031 exchange property held in a Title Holding Trust?

Yes, the Title Holding Trust is a fully revocable grantor trust that can be terminated, altered, amended or updated by the trustor and/or beneficiary at any point in time.  It is also classified as a pass-thru entity and a disregarded entity.  The property held in the Title Holding Trust is characterized for tax purposes as held by the underlying beneficiaries of the Title Holding Trust.  A full or partial assignment of a beneficial interest in the Title Holding Trust is treated as a conveyance of the underlying property held in the Title Holding Trust. 

Can I 1031 exchange out of property held in one Title Holding Trust and buy property held in a different Title Holding Trust?

Yes, as long as the underlying beneficiaries of both Title Holding Trusts are exactly the same the transaction will qualify for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code.  And, both properties do not need to be held in a Title Holding Trust.  You could sell relinquished property that was held in a Title Holding Trust and acquire replacement property that was held in your individual name as long as the individual was also the beneficiary under the Title Holding Trust.


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Can I sell rental property and pay off a loan on another property through a 1031 exchange?

No, you must sell real estate and acquire other replacement real estate in order to qualify for a 1031 tax deferred exchange.  The pay down or pay off of debt on another property, whether your principal residence or investment property, is not an acquisition of real estate and will not qualify as a tax deferred exchange under Section 1031 of the Internal Revenue Code.


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Can I structure a tax-deferred exchange on vacation property or my second home?

No, real or personal property held and used only and exclusively for personal use such as vacation property or a second home will generally not qualify for tax-deferred exchange treatment. 

However, the IRS did issue Revenue Procedure 2008-16 in 2008 that provides certain "safe harbors" that permit the tax-deferred exchange of second homes and vacation property.  The Revenue Procedure requires the property owner to hold the property for at least 24 months (two years), to rent the property out for at least 14 days per year/each year, and to limit their personal use to not more than 14 days per year/each year or 10% of the total number of days that the property was actually rented out. 

It may also be possible to discontinue all personal use of the property and convert the use of the real property to investment property for a period of time and then structure and complete a tax-deferred exchange.  You may want to read 1031 Exchanges of Vacation Properties: Do They Really Qualify?


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What is a Qualified Intermediary (Accommodator) and do I need one?

The Internal Revenue Service will disqualify a 1031 exchange, recharacterize it as a taxable sale, and subsequently assess the depreciation recapture and capital gain income tax liabilities if you have the ability (right) to access, control or receive, or could have received, the sale proceeds after the disposition (sales) of your relinquished property (constructive receipt and/or actual receipt).

Section 1.1031 of the Department of the Treasury Regulations specifically requires the use of a Qualified Intermediary, also known as a 1031 Exchange Accommodator or 1031 Exchange Facilitator in the real estate industry.  As the Qualified Intermediary, Exeter 1031 Exchange Services, LLC will be assigned in to the transaction on behalf of the Investor as the seller or buyer, depending on which side of the transaction you are on, and hold the net sales proceeds from the sale of the relinquished property until the like-kind replacement property transaction is ready to close. The Department of the Treasury Regulations contain certain safe harbor provisions that avoid the constructive or actual receipt issues when the Investor has retained and used a Qualified Intermediary or 1031 Exchange Accommodator.

The Qualified Intermediary must be an independent entity who is not the Investor, an agent of the Investor, or a related party to the Investor and who enters into a written Like-Kind Exchange Agreement, Qualified Escrow Account Agreement and the Assignment, Acceptance, Notice and Direction to Convey documents. These tax-deferred like-kind exchange agreements must limit and restrict the Investors's rights to the 1031 exchange funds from the sale of the relinquished property. It directs the Qualified Intermediary to acquire the relinquished property from the Investor, transfer it directly to the buyer, acquire the like-kind replacement property from its seller and transfer it directly to the Investor.

You should also read Choosing a SAFE Qualified Intermediary (Accommodator)


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What does Exeter 1031 Exchange Services do as a Qualified Intermediary?

Exeter 1031 Exchange Services, LLC serves you in four very important roles as your Qualified Intermediary or often referred to as the 1031 Exchange Accommodator or 1031 Exchange Facilitator in the real estate industry:

1) We obtain and review copies of your purchase and sale agreement, preliminary title insurance report or title commitment, closing instructions, escrow instructions (if any) and settlement statements to ensure all are in compliance with applicable 1031 exchange codes, regulations and rulings. 

2) We prepare all of the legal documents necessary to structure your 1031 exchange transaction, including the Tax-Deferred Exchange Agreement, the Assignment, Acceptance, Notice and Direction to Convey and any other transactional documents necessary to complete your tax-deferred like-kind exchange transaction.  We will also provide you with your Identification of Replacement Property Form and we will assist you in completing your identification within the prescribed deadlines. 

3) We receive, hold and safeguard your 1031 exchange funds (net proceeds) during your 1031 exchange transaction and until you are ready to close on your like-kind replacement property transactions.

4) We are here to help you navigate through the complicated 1031 exchange code, regulations and other 1031 exchange transactional and structural requirements.  We are always available to answer any questions that you might have. 


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What deadlines apply to a 1031 exchange transaction?

The successful completion of a 1031 Exchange transaction requires Investors to comply with certain deadlines pursuant to Section 1031 of the Internal Revenue Code, which have been further clarified within Section 1.1031 of the Department of the Treasury Regulations.

The 1031 Exchange deadlines consist of the 45 calendar day identification deadline and the 180 calendar day (or less) exchange period.  These deadlines can not be extended under any circumstances, unless the President of the United States declares a natural disaster area that affects the properties or parties involved with the tax-deferred like-kind exchange transaction.

See our article on 1031 Exchange deadlines for more complete information.


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How do I identify my potential replacement properties?

Your identification must comply with one (1) of the identification rules and should be in writing, signed by you, and sent to your Qualified Intermediary.  Exeter 1031 Exchange Services, LLC, as your Qualified Intermediary, provides you with an identification form to simplify the identification process.  The identification is generally sent via facsimile, but could also be sent via U.S. Mail or overnight delivery service. 

Identifications must be received by your Qualified Intermediary no later than mid-night of the 45th calendar day after the close of your relinquished property (see deadlines discussed above).  You must be very careful when completing your identification; you must be as specific and an unambigous as possible so that it is very clear what property your are acquiring, including fractional/partial interests, unit numbers, etc. 

Identifying replacement property that is to be built or constructed as part of an Improvement 1031 Exchange will be more complicated and should be completed with the assistance of your legal or tax advisors. 

How do I identify a fractional interest or partial interest, such as a tenant-in-common investment property, as my like-kind replacement property?

The identification process is essentially the same as any other 1031 Exchange transaction.  The only difference is you are identifying a fractional interest or partial interest in the replacement property and not 100% of the property.  Your identification must be as specific as possible, and should include the exact fractional interest that you intent to acquire. 

If you intend to acquire a 5% tenant-in-common interest in a replacement property, you should identify it as a 5% interest in that property.  Your identification could be interpreted as an intent to acquire 100% of the property if you fail to identify the percentage interest in the co-ownership relationship. 


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Can I back-date my identification form to be within the 45 day period? 

Absolutely not! The 45 calendar day deadline is part of the Internal Revenue Code. It cannot be extended by the Investor under any circumstances. The act of back-dating, altering or changing the identification after the 45 calendar day deadline has passed is criminal tax fraud and should never be considered under any circumstances.

In fact, the argument can be made that a Qualified Intermediary (Accommodator) that routinely accepts back-dated or altered documents and/or knowingly participates in any type of income tax fraud would lose its Qualified Intermediary status and could have any or all of its 1031 exchange transactions disallowed by the Internal Revenue Service.


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When should I retain Exeter 1031 Exchange Services, LLC?

Exeter 1031 Exchange Services, LLC can be retained at any time after the final purchase and sales agreement has been signed by you and your Buyer of the relinquished property.  The Qualified Intermediary must always be retained and assigned into your purchase and sales agreement and/or any escrow instructions, if applicable, prior to the close of your transaction.

The purchase and sales agreement and/or escrow instructions should contain standard cooperation clause language and be signed by the Buyer to cooperate with you in completing your intended 1031 exchange transaction at no additional cost or liability to the Buyer.

Exeter 1031 Exchange Services, LLC will require a copy of the purchase and sales agreement, escrow instructions (if any) and a preliminary title insurance report or title insurance commitment for the property to begin preparing its 1031 exchange documents.


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Will doing a 1031 exchange make the transaction more difficult?

No, Exeter 1031 Exchange Services, LLC has extensive experience in the administration of 1031 exchange transactions. The process will be exceptionally smooth when working with one of our 1031 exchange specialists. Except for a few additional documents prepared by Exeter 1031 Exchange Services, LLC, there is little difference between doing an 1031 exchange versus an ordinary sale of the relinquished property with a corresponding purchase of the like-kind replacement property. The like-kind replacement property, subject to the identification rules and deadlines, is acquired just like in a normal purchase transaction and with the same freedom of choice.


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Do I have to spend all of the 1031 exchange proceeds?

No, you do not have to reinvest 100% of your net sales proceeds, however the amount that you do not reinvest will be subject to depreciation recapture and capital gain income tax liabilities and the amount that you do reinvest will be tax-deferred. This is called trading down in value or completing a partial 1031 exchange and will result in mortgage boot and/or cash boot.  You will need to reinvest 100% of your net sales proceeds if you want to defer 100% of your income tax liabilities.


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When can I receive my 1031 exchange funds if I do not reinvest 100%? 

The Department of the Treasury and the Internal Revenue Service have placed certain restrictions on your rights to receive, pledge, borrow, or otherwise obtain the benefits of your 1031 exchange funds, including when the Qualified Intermediary can release the funds to the Investor.

The Investor can receive the unused 1031 exchange proceeds at anytime after the 45 calendar day identification period expires and the Investor has either (1) not identified any like-kind replacement properties; or, (2) has acquired all of his identified like-kind replacement properties.

If he has not acquired all of the identified like-kind replacement properties, then the unused proceeds cannot be released until the 181st day after the closing of the relinquished property.

See our article on Failed or Partial 1031 Exchange May Qualify for Installment Sale Treatment and our Notice to Exchangor that also address this issue.


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Can I carry back a note when I sell my relinquished property?

Yes, you can carry back an installment note often referred to as seller carry back financing or a seller carry back note when selling your relinquished property. The seller carry-back note can either be included as part of your 1031 exchange transaction, or excluded by you outside of the 1031 exchange transaction. This is a complex structure and should always be reviewed with your legal and tax counsel prior to moving forward with your 1031 exchange.  Exeter 1031 Exchange Services, LLC is always available to assist you.


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Can I sell more than one relinquished property in the same 1031 exchange?

Yes. There is no limit as to how many relinquished properties or how many like-kind replacement properties you can have within the same 1031 Tax-Deferred Exchange transaction. There are practical concerns that should be addressed with Exeter 1031 Exchange Services, LLC.  You may have more flexibility in these situations by structuring each relinquished property in a separate 1031 Tax-Deferred Exchange transaction or file.


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How long do I have to hold the relinquished or replacement property?

This is an age-old question. The Internal Revenue Code and Treasury Regulations do not specifically address this, but there are some court decisions and other rulings that provide some limited guidance in this area.

Generally, you must demonstrate your intent to hold the property for investment, rental and/or use in a business. The longer you hold, treat and report the property as investment property the easier it is to prove that you had the intent to hold the property for investment purposes. The shorter the time frame the more aggressive and risky your position is. Most tax advisors recommend that you hold title to both properties for at least one year and straddle two income tax years, but obviously the longer the better.

See our article entitled "Holding Requirements for 1031 Exchange Relinquished and Replacement Properties" for more complete information regarding 1031 exchange holding requirements or guidelines.


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What are the fees and/or costs involved with a 1031 exchange?

The fees vary depending on whether you are completing a forward (regular) 1031 exchange, reverse 1031 exchange, improvement (build-to-suit or construction) 1031 exchange, or a personal property 1031 exchange.  Contact our national branch office closest to you for more complete information, including a written fee quote.


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My transaction (escrow) closed yesterday. Can I still do a 1031 exchange?

No, Exeter 1031 Exchange Services, LLC must be assigned into the purchase and sale agreement and/or escrow instructions before your transaction closes. You will have "constructive receipt" of the funds (i.e. control over the funds) if your sale transaction has closed with out Exeter 1031 Exchange Services, LLC being assigned into your transaction, even if the funds have not yet been disbursed by the closing agent to you because you still have the right to the 1031 exchange funds.


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Can the 45 and 180 calendar day deadlines be extended?

No. These deadlines are actually part of the Internal Revenue Code and cannot be extended for any reason except by a Presidential Disaster Declaration.  The deadline is not extended if it falls on a Saturday, Sunday or legal holiday.


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If I sell property that was held in my individual name, can I acquire my like-kind replacement property in my corporation?

No. Generally speaking, the taxpaying entity should be the same on both sides of the 1031 exchange. In other words, if you sold relinquished property that was held in your individual name you should also acquire your like-kind replacement property in your individual name.

Selling relinquished property held in your name as an individual and subsequently acquiring your like-kind replacement property in your corporation would result in a disallowed 1031 exchange transaction because there are two entirely different taxpaying entities involved in the transaction even though you may own 100% of the corporation. 

There are some exceptions to this general rule such as single member limited liability companies, so you should consult with your legal or tax advisor for more specific information.


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Can corporations, general and limited partnerships and limited liabilities companies complete 1031 Tax-Deferred Exchanges?

Yes, absolutely.  Taxpaying entities of any type are allowed to structure and complete tax-deferred exchange transactions.


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Can shareholders in a corporation, partners in a partnership or members in a limited liability company structure and complete a tax-deferred exchange?

Generally, no.  The entity is the actual owner of the real estate.  The underlying shareholders, stockholders, general partners, limited partners, or members do not own a real property interest.  They actually own an interest in the legal entity, which is a personal property interest and not a real property interest, and therefore they do not have the ability to structure and complete a tax-deferred exchange.  There are sophisticated and complicated procedures and structures that may be utilized to correct this problem depending on your circumstances.  You should consult with your legal, tax and financial advisors before proceeding. 


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My lender is insisting that I acquire my like-kind replacement property in a limited liability company even though I sold my property as an individual. Will my 1031 exchange still qualify for tax-deferred treatment?

Yes. Generally speaking, the taxpaying entity should be the same on both sides of the 1031 exchange transaction. However, there are certain exceptions.

For example, a single member limited liability company (LLC) is considered by the Internal Revenue Service (IRS) to be a disregarded entity for income tax reporting purposes. This means that the LLC is ignored for income tax reporting purposes and the underlying single member (the Sole Member/Investor/Owner) is considered to be the actual buyer or titleholder of the real property.

So, you can sell your relinquished property in your name as an individual and acquire your like-kind replacement property in a limited liability company if you are the sole member of the LLC. 


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Can I buy shares in a Real Estate Investment Trust (REIT) as my like-kind replacement property?

No. Your relinquished properties and your like-kind replacement properties must be like-kind property in order to qualify for 1031 exchange treatment. So, if you sell an interest in real property you must also acquire an interest in real property. An interest in a Real Estate Investment Trust (REIT) is actually a security interest and not an interest in real property even though the REIT itself owns real property, and security interests are specifically excluded from 1031 Tax-Deferred Exchange treatment.

You can complete an upREIT structure that involves a combination of a 1031 exchange first with a 721 exchange later.  This structure effectively allows you to dispose of real estate and exchange into a REIT on a tax-deferred basis.  There are limitations however, so you might want to read more about the various tax-deferral solutions available. 


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Can I combine a Section 1031 Exchange with a Section 121 Exclusion?

Yes. There are a number of transactional structures and strategies where you can apply both Section 1031 ("1031 exchange") and Section 121 ("121 exclusion") of the Internal Revenue Code.

In the case where a property is used simultaneously as a primary residence and for rental, investment or use in a trade or business, the 121 exclusion would be applied to the portion used as a primary residence and the 1031 exchange would be applied to the portion that is used for rental, investment or use in a trade or business. The allocation is usually made using the applicable square footage, although other methods may be appropriate. The 121 exclusion can be used on the entire sale of the property, including the investment portion, if the property is a single dwelling or structure.

The sale of real property that was originally purchased by you as investment property, was NOT part of a prior 1031 exchange transaction, and was subsequently converted into your primary residence will qualify for 121 exclusion treatment. This is a great strategy to convert a potential tax-deferred exchange transaction into a tax-free sale under Section 121.

The Department of the Treasury and the Internal Revenue Service also issued Revenue Procedure 2005-14, which gives the taxpayer the ability to apply both the 1031 exchange and the 121 exclusion to the sale, disposition or exchange of a single property. Click here to read an article on the subject.


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What are the common 1031 exchange terms, phrases and definitions? 

There are numerous industry terms, phrases and definitions.  We have accumulated many for your review.  Please review our 1031 Tax-Deferred Exchange Glossary and Terms.  If you do not find what you are looking for, please contact one of our national branch office locations or email us your questions at ASK Exeter


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What is a Tenant-In-Common Investment (TIC Investment)

Historically, the tenant-in-common was a method of holding legal title to real property.  The term tenant-in-common has more recently become synonymous with a fractional ownership in real property (or personal property) that you can acquire as your like-kind replacement property.  Refer to our article entitled Brief Overview of Tenant-In-Common Investment Properties (TIC Property Interests) or our more in depth article entitled Evaluating Co-Ownership (CORE) or Tenant-in-Common (TIC) Interests in Real Estate for more complete information.

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Can related parties complete a tax-deferred exchange?

Yes, related parties can complete a tax-deferred exchange.  There are special rules that govern related party tax-deferred exchange transactions that need to be reviewed by your legal and tax advisors before completing the transaction, especially if you are acquiring your like-kind replacement property from the related party.  And, there is a two year holding requirement for both properties that are acquired by the related parties as part of the tax-deferred exchange.

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Can I 1031 Exchange by selling rental property and paying off my mortgage?

No.  You must sell real estate and then 1031 Exchange into (buy) investment real estate that you do not already own.  The pay off or pay down of a loan (mortgage or deed of trust) is not considered a purchase of real estate.  It is just a payment toward a debt and does not satisfy the like-kind property requirements.

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