(1) A §1031 tax deferred exchange is for investment property only. Land, commercial, or residential property that has been rented out, all qualify.
(2) A seller must use a Qualified Intermediary (QI) to act as the safe harbor of their funds
(3) You must spend equal to what you sell for minus customary closing costs in order to have 100% tax deferral. Anything below that number will be exposed to taxes, up to the extent of your gain.
(4) The true meaning of Like Kind: to the IRS the term simply means anything held for investment purposes. So you can buy and sell any of the following Land, Residential and Commercial and ALL are considered like-kind, OR you can sell one and buy multiple.
(5) Timeframes are not extendable in an exchange, the seller has 45 days from close to identify what you are going to purchase and a 180 days to close on it. The 45 days are included in the 180 days.
(6) Giving buyer credits are considered unallowable expenses if audited may be considered Boot (taxable cash), so consider lowering the sales price verses giving buyer credits.
(7) Under the (g)(6) of IRC 1031, there are restrictions when you can access you funds, if you have identified a property and you are past your 45days and don’t close on a property previously identified, your funds are held for the full 180 days. Be sure you have a good QI that clearly explains this so your funds don’t get locked up.
(8) Buying and selling from family members has its restrictions, when you buy from a direct member of your family; parents, children, siblings there is a two year hold rule under related party rules. Both you and the family member have to sell/buy and hold for two years or the taxpayer’s exchange could be deemed failed under audit.
(9) The exchange industry is not regulated, what that means is anyone can be an Accommodator. That is scary, chose a nationwide company that has the financial stability and backing to protect your funds.
(10) Most important, The IRS states you must be in exchange agreement with a Qualified Intermediary(QI) prior to closing on the sale of your relinquished property in order to defer any gain when you buy your replacement property; it cannot be done after close.
Regional Sales Executive
Old Republic Exchange Company
T: 480.443.6830 -AZ