What to Look for in a 1031 Exchange

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1031 tax exchange properties have very specific requirements attached to them and this article will focus upon what to look for when searching for 1031 tax exchange properties.

To give a little background on the IRS and what it considers a 1031 able exchange. Consider the various ownership methods:

  • land held for investment
  • land held for business
  • land held for personal residence
  • land held primarily for sale

For a property to qualify for as a tax exchange property, it must fall into one of the first two categories. The land must either be held for business purposes or land which is held for investment purposes.

This quickly eliminates your personal residence as a potential property which you can use as a 1031. The other category is land held primarily for sale.

If you are someone who buys houses and sells them quickly (flips property), this falls in the category of land held primarily for sale.

You should know the type of properties which are tax exchange properties and this is also important in knowing what type of properties you are not able to exchange for. They must fall under the same two categories explained above and these properties are known as like-kind properties.

To give further clarification consider a sold farm, you often will have your personal residence as well as farmland. Your real estate can potentially fall under two different classifications then as you have farmland for business purposes as well as a personal residence.

Whenever you are looking at 1031 exchange properties, make sure to get qualified professionals to help you with this. This is crucial as you can be penalized if you do not abide by the rules.

Then once you have sold you are property, you have 45 days to find a property which you exchange for the one which you have sold.  In other words the race is on!

You also only have 180 days from the sale of your property in which to close on the sale of these properties. 1031 exchange properties can be more than one property that you trade for another property.

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