Section 1031 Like Kind Exchanges

There are many details involving the use of 1031 Exchanges but here are the basics:

Section 1031 (a) of the Internal Revenue Code states the recognition rules for realized gains (or losses) that arise as a result of an exchange of like-kind property held for productive use in trade or business or for investment. It states that none of the realized gain or loss will be recognized at the time of the exchange.

It also states that the property to be exchanged must be identified within 45 days after the sale of the old property and the acquisition of the replacement property must be completed within 180 days of the sale of the old property.

Restrictions are imposed on the number of properties which can be identified as potential Replacement Properties. More than one potential replacement property can be identified as long as you satisfy one of these rules:

3 Property Rule: Up to 3 properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange, only the amount needed to satisfy the value requirement.

200% Rule: Any number of properties as long as the aggregate fair market value of the replacement properties does not exceed 200% of the aggregate fair market value of all the exchanged properties as of the initial transfer date.

95% Rule: Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange is at least 95% of the aggregate fair market value of all the potential replacement properties identified.

Contact us for further details and current developments regarding the use of Section 1031 Like Kind Exchanges.