Here are the top 1031 Exchange Rules you need to know.
Because here’s the problem: The IRS has given specific rules on how to do a 1031 Exchange. And when you follow those rules, you have less chance of having your Exchange voided.
And real quick, a 1031 Exchange is when you sell one rental property buy another one, and you then can defer your taxes possibly forever. And it helps you to build generational wealth for your family just like the big investors do.
1031 Exchange Rules
1. Show intent that you are going to do a 1031 Exchange.
Show intent on all of your documents, including your listing documents, your sale documents, your purchase documents, on your new Exchange properties.
2. Shop early.
Shop for your replacement property as soon as you have decided that you will sell your property. This will give you more time.
3. You must purchase a property with equal or higher debt and equity.
Equal or higher debt means that you will also have more loan and you will have equal or greater equity, meaning the amount of money that’s the difference between your sales price and your loans.
You can do this in one or more properties so that you will get the proper equities and debt.
4. Find Loans Early.
That means shopping early for your loans on the new property, way early on in the transaction so you’ll know what that will mean in your next property. Because you are an investor, there are limited numbers of loans.
5. Like-Kind equals various types of real estate.
Like-Kind doesn’t mean condo for condo or house for house. You could go house for condo, you can go house for shopping center, you could go parking lot for condo. It’s various types of real estate. And be aware that they can all be Like-Kind by the definition for an Exchange.
6. Time Matters.
Know the 45 and 180 day rules in a 1031 Exchange. They do not vary. So if you miss one, your Exchange might be voided. Time matters.
7. Choose a Qualified Intermediary.
This is the person who will hold your money when you sell your property and buy your new one. This is a very important entity in your whole transaction, so you should make your choices early. The other advantage of a Qualified Intermediary is they will help coach you through the transaction.
8. Designate replacement properties clearly.
Designate a legal description and an address, so that it could be understood by anybody out there. And who do you designate to? Of course, that’s your Qualified Intermediary, and it should be clearly in writing, within the 45 day period.
9. make sure you buy and sell in the same name.
What this means is that if you are John Doe selling your property, be sure that John Doe buys the new property. If you’re an LLC or a corporation or a partnership, make sure that the new property will be in the same name.
10. Consult with legal and tax advisors throughout the transaction.
Oh, and if we haven’t met, my name is Maxine Golden. I’m a longtime real estate broker, and I started the 1031 Exchange Lady Channel because I believe that you deserve the same tax breaks as the big boys. The law says you do. But don’t just take my word for it. Ask the IRS or talk to your accountant, they’ll tell you the same thing.
So I specialize in helping rental property owners like yourself in cities across America find qualified experienced real estate agents who can help them with their 1031 exchanges and to defer their taxes. I look forward to seeing you in the next video.