5 Things You Should Know About 1031 Exchange

There are various confusions related to the 1031 exchange. To offer some clarity in this regard, we have discussed five important things you must know about this exchange process.

Exchange is not for personal use

The provision is for business and investment property. This means the primary residence cannot be exchanged for another residential property. There is a provision for swapping vacation homes under this exchange, but you need to go through the regulations and requirements thoroughly.

Delayed Exchange is applicable

In an exchange, swapping of a property against another occurs between two parties. A lot of exchanges are delayed because it is difficult to find someone with the exact property that an investor wants. In a delayed exchange, the cash is held by a middleman after the individual sells his/her property.

The investor must close within 6 months

The investors are required to close on the replacement property within 180 days of selling the relinquished one. If s/he designates the replacement property on the 45^th day, the investor will get 135 days for closing.

An investor needs to designate replacement property

After selling the property, the investor needs to designate replacement property within 45 days. The designation of the property is done in writing to the qualified intermediary.

Multiple replacement properties can be designated

A lot of individuals often get confused on how many properties can be designated by an investor. As per the guidelines of the IRS, an individual can designate three properties as the replacement properties. There are also provisions to designate more properties, but certain guidelines need to be followed.

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