1031 Exchange Timeline
What Are the Rules of the Exchange?
Like most things, there are a few guidelines to follow during the 1031 exchange process. You must fall within certain time frames, properties must be of equal or greater value, and provisions largely apply for investment or business property only (although vacation homes may sometimes qualify). Following these rules are important so that you don’t owe taxes on any profits you make from the sale that don’t go towards your replacement property.
Although a 1031 exchange can be a wonderful opportunity for investors, there are many complexities to navigate, which is why it’s important to have competent and qualified professional assistance for every step. Provident Title & Escrow is happy to help you manage the entire 1031 exchange process for you, as well as serve as a Qualified Intermediary during the exchange.
For more detailed information, visit our general information page on 1031 exchanges.
What Is the Timeline For a 1031 Exchange?
Contact Provident Title & Escrow (PTE)
PTE opens your file and provides you with exchange instructions
PTE provides exchange documents to your closing company
Property is sold and funds are wired to PTE
You have 45 days to identify the new investment property(s)
You have 180 days to purchase your new investment property(s)
PTE forwards exchange funds and documents to your closing company
What Are the Timing Requirements?
The chances of you being able to find someone selling a property that you’re interested in, who is also interested in buying your property, are extremely slim. For this reason, most people opt for delayed exchanges.
Delayed Exchange
45-Day Rule
The first criteria is for you to identify or designate the replacement party you are interested in to your intermediary (Provident Title & Escrow). Once the sale of your property occurs, the intermediary then receives the cash. Within 45 days of the sale, you must designate the property you wish to acquire. The IRS allows you to designate three properties, as long as you eventually close on one of them.
180-Day Rule
The second criteria in a delayed exchange is that you close on your designated property(s) within 180 days of the sale of your property.
Simultaneous Exchange
A simultaneous exchange is when you sell your current property and purchase your replacement property at the same time. Although this exchange is the most ideal, it can be difficult to accomplish because of the many rules and moving parts associated with a 1031 exchange.
Reverse Exchange
A reverse exchange is when an investor purchases the replacement property prior to selling their relinquished property. This type of exchange is ideal for investors who need to close on a replacement property prior to finding a buyer for their relinquished property.
Improvement Exchange
An improvement exchange is also known as a construction exchange or a build-to-suit exchange. This situation is ideal for an investor who wants to use the exchange proceeds to improve the replacement property. As in the delayed exchange, an investor will have 180 days to close on the transaction with finished improvements.
Reverse and improvement exchanges are more costly than the first two exchanges, and often more difficult, but they are options that allow some flexibility within the 1031 exchanges.
When to Consider a 1031 Exchange
When selling an investment property, you typically have to pay a capital gains tax.
If you own an investment property that is worth more than when you (or the original owner) purchased it for, you can accumulate a significant amount of wealth.
On the other hand, if your replacement property is of lesser value than your relinquished property, the difference is taxable. The difference between the property values being exchanged is called boot. There are certain expenses and fees to consider that could impact the value of your transaction and the potential boot. These include but are not limited to:
Qualified Intermediary Fees
Related Tax Adviser Fees
Broker’s Commission
Filing Fees
Title Insurance Premiums
Finder Fees
Escrow Fees
You cannot pay financing fees, property taxes, repair or maintenance fees, or insurance premiums with your exchange fund.
Tax deferment is a wonderful opportunity for investors, but it should not be a process to take on alone. There are many rules and guidelines to follow, and having a tax adviser or professional can help you save a lot of time and money. Contact PTE exchange at (703) 239-0650 or email jrichter@jrichterlaw.com for 1031 exchange related questions. We’re here to help.
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