8 things you need to know about 1031 exchange property

1031 exchange is basically a swap of a business or an investment asset for another. Such an exchange is hugely popular specifically in terms of real estate as it has a no or limited tax liability at the time of exchange. Read on to know all about 1031 exchange property!

Answered By Betty Parker | 2 years ago
  • Q: Can a 1031 exchange be used for personal use?

    No, you cannot swap your primary residence for another home as 1031 exchange is limited to properties used as investments or for business purposes.

  • Q: How long should a property be held before an exchange?

    There is no tax code mandate in terms of a specific time for holding an investment property; however, it may be that the IRS states a minimum holding period of two years.

  • Q: How much does a 1031 exchange cost?

    While the cost of exchange varies on the type and circumstance, a clean swap of property may cost somewhere around $500 and a delayed exchange may cost about $750. For a more complex transaction, the cost of exchange may start at $3500.

  • Q: What are the closing costs that can be paid with exchange funds?

    According to the IRS stipulation, closing costs, which can be considered as normal transactional costs, should be paid with exchange funds. Some of these costs may include sales commission, legal fees, finder’s fee, escrow fee, inspection fee, property tax, and the like.

  • Q: What are the crucial factors that you must know before starting an exchange?

    Several factors need to be considered before proceeding with an exchange. Some of these include knowing what exactly is being relinquished, the time when the property was acquired, the cost, the way it was invested, usage of the property during ownership, the value, equity, and mortgage of the property, etc.

  • Q: What are the time requirements in 1031 exchange?

    Post the closing on the relinquished property, the investor must nominate a replacement property within 45 days and acquire it in about 180 days from the closing.

  • Q: What is the information needed to structure an exchange?

    While this may vary with every exchange, typically, the name, address, and phone number of the exchanger and the escrow officer is required. Additionally, the escrow officer’s number should also be known before structuring an exchange.

  • Q: Which property qualifies under 1031 exchange?

    Properties which are held for investment purposes or other productive uses are qualified to be exchanged by any other type of property under 1031 exchange.

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