1031 Exchange Laws

Written by Linda Alexander
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If you plan to take advantage of a 1031 exchange, you should be aware of the exchange laws. First, you can only do this with property that you are holding for rental, investment, or business use. You must also have the "intent to hold" the replacement property for rental, investment, or business use.

Income and Business Property Only

Unfortunately, you cannot perform a 1031 exchange with your primary residence. You can do it with vacation homes and rental property, however. You also must go through a qualified intermediary to perform the exchange.

This is a neutral third party who will acquire the relinquished property from you, transfer it to the buyer, acquire the replacement property from its seller, and then transfer it to you. You cannot receive any of the proceeds from your sale, so the QI also holds the funds in escrow for you. If any interest is earned on that money, you can use it toward your replacement property, or you might have an agreement to give it to the QI.

Although your QI cannot be a family member, your real estate agent, or your lawyer, there are specialists who do nothing but facilitate 1031 exchanges. Some even help exchangors to locate replacement properties suitable for 1031 exchanges. If you are thinking of doing a 1031 exchange, contact one today and see what properties are available. You will not only defer taxes, but you will also grow your investment!


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