Learn more about 1031 Exchanges
“The Three Property Rule”
Any three properties that qualify for the exchange may be identified. Only one of the identified properties needs to be purchased. You can purchase all three if you like. 95% of all exchanges choose this option.
"The 200 Percent Rule"
You may identify any number of properties provided that the total price of those identified does not exceed TWICE THE PRICE for which you sold your property.
Example: If you sell your property for $200,000, you can identify 10 properties so long as the aggregate market price does not exceed $400,000, or you can identify 5 properties so long as the aggregate market price does not exceed $400,000.
"The 95 Percent Rule"
Identify as many properties as you like as long as you purchase, on exchange, at least 95 percent of the fair market value of all property identified before the end of the exchange period.
Example: Make a list and then buy 95 percent of the total list (value is the key).
*Any property purchased on exchange prior to 45 days after the sale date does not need to be identified. You may change your identification list anytime prior to 45 days after the sale date.
Sales Price $350,000
Mortgage Payoff $133,000
Equity or Cash $217,000
Sales Price $350,000 or greater –less allowable expenses; Real Estate Commissions, Title Insurance, Property Taxes, etc…
New Mortgage $133,000 or greater
Equity or Cash $217,000 or more
**The “Replacement Property” may substitute the mortgage portion with cash equity; however, the equity portion may not be substituted with a new loan.
1031 Exchange Terms
First American Exchange or The FUND, Qualified Intermediary, Facilitator.
Method of measuring investment in property for tax purposes. Example: Original cost plus improvements minus depreciation taken.
Fair market value of non-qualified (not like kind property) received in an exchange. Example: cash, notes, furniture, supplies, etc.
Property that qualifies for a 1031 exchange. Example any real estate held for investment.
A safe harbor for 1031 exchanges.
"Like kind property;" Property held for productive use in trade or business, or for investment.
Property sold on 1031 exchange, the property being replaced. Down-leg.
Property being purchased on 1031 exchange. Up-leg.