1031 Exchanges – The Four Basic Rules
Given the glut of triple net retail, single tenant, S&P BBB rated or higher, replacement properties that have come on market over the last couple of weeks, we have plenty of net leased Walmarts, Walgreens, CVSs, 7-11s, etc. available, and at decent cap rates with long 10+ year leases.
These are as perfect a 1031 replacement (upleg) property as we find so I thought it might be a good time to go over the four primary 1031 rules.
- Rule # 1 Both the relinquished property and replacement property must be held for investment purposes or used in a business and be ‘like kind’.
- Rule # 2 The IRS requires the investor to identify the replacement property or properties within the 45 ‘identification period’. The identification period begins the day of closing of the relinquished property. The replacement properties must be properly identified by the Exchanger.
There are two more identification rules under Rule #2. The exchanger may identify up to three replacement properties regardless of market value (Three Property Rule). Or they may identify unlimited number of properties provided that the total value not exceed 200% of the relinquished property (200% Rule). The minimum requirement is 95% of the value of the relinquished property
- Rule #3 You must close on the replacement property the earliest of within 180 days of the closing of the relinquished property or the due date of the tax return or file an extension. And this is 180 calendar days … no time off for weekends or holidays.
- Rule #4 On a delayed exchange, you must work with an IRS approved Qualified Intermediary.
For more detail regarding a 1031 exchange replacement properties, or referral to a Qualified Intermediary, contact me, Scott Harris, 310.473.4789 or 614.905.6614