Have you done a 1031 exchange? Do you have a property you need to see but are unsure about all the 1031 strategies?

I did a 1031 exchange last summer, and it was stressful! We had 45 days after our sale to identify up to three properties that we intended to purchase. After that, we had 180 days to close on any or all of those three. Fast forward…we closed on one of the three properties we put on our list. But we didn’t use all of our exchange funds, thus we had to pay a bit of capital gains on the back end. It was perfect execution of the deferred tax benefit, but it worked out in the end.

I helped a client find a 1031 exchange property in the summer of 2023. He sold a commercial building and had 45 days to identify an exchange property. We found a solid investment in the timeframe, and we closed under the 180-day timeframe.

If these are new concepts to you, here are some basics about a 1031 exchange:

• First and foremost, talk to your CPA to understand your unique tax situation and how a 1031 may help or hinder your financial profile.

• When you sell your investment property sale, you have 45 days to identify up to three properties. You have 180 days to close on one, two, or three of those identified properties.  

• You must use a “Qualified Intermediary” (QI) to hold the funds during the exchange period. The funds must never hit your bank account or your LLC’s bank account.

• You must exchange into a “like” property, which simply means any kind of investment property. Commercial to residential is ok, residential to retail is ok, retail to land is ok, etc.

• The exchange property must be of the same value or more, and it must have the same amount of debt or more.

• Delaware Statutory Trusts (DSTs) are good exchange alternatives. They allow you to exchange into an investment that is not the hard asset itself but rather shares/securities of a trust that owns real estate assets.

Please contact me below if you have more questions about a 1031 exchange, need more resources, or would like to work with me to sell or purchase your investment property.