You have questions. We have answers.
What defines a like-kind property?
According to the IRS, properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. Most real estate will be like-kind to other real estate. Due to the Tax Cuts and Jobs Act of 2017, as of 2018, only real estate qualifies for a 1031 Exchange.
Who qualifies for a Section 1031 Exchange?
Owners of investment and business property may qualify. Individuals, C corps, S corps, partnerships (general or limited), LLCs, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
What is a Qualified Intermediary (QI)?
You must have a Qualified Intermediary (QI) to facilitate the 1031 Exchange. The QI acts on behalf of the exchanger (buyer/seller) to shepherd the transaction in accordance with the IRS rules. One role of the QI is to ensure that the exchanger (buyer/seller) does not have access to funds in between the sale of the first property and the purchase of the second property.
Is Exchange Properties a Qualified Intermediary (QI)?
Yes, Exchange Properties is a Qualified Intermediary. In addition, our affiliated company, Attorney’s Title Group, can serve as the closing agent for 1031 exchanges. Our goal is to work with all parties to ensure a smooth transaction.
What are the deadlines/timelines involved with a 1031 Exchange?
You have 45 days from the date you sell the property to identify potential replacement properties. There is a 180-day timeframe to purchase and close on the new property after the old property is sold (or within 180 days after your tax return is due, whichever comes earlier).
What is “Boot”?
The term “boot” is not used in the IRC Section 1031, but you may hear the term when discussing these transactions. Boot is not like-kind property received in an exchange. This can be cash, stocks, bonds, and other types of property not considered like-kind. Boot may not disqualify the exchange, but will be taxed. One example of boot is the possibility of cash being left over after the replacement property is acquired. In that case, the Qualified Intermediary will pay it to the exchanger at the end of the 180-day timeframe. That cash can also be known as “boot” and it will be taxed as partial sales proceeds.