Understanding Delayed 1031 Exchanges

Key Requirements for a Delayed 1031 Exchange

To qualify for a delayed 1031 exchange, investors must adhere to strict guidelines set forth by the IRS. Below are the key rules to follow:

1. Use a Qualified Intermediary (QI): Investors cannot take possession of the sale proceeds themselves. Instead, they must hire a qualified intermediary like Excel 1031 to hold the funds while searching for the replacement property.
2. 45-Day Identification Period: Within 45 days of selling the relinquished property, the investor must identify potential replacement properties. The identification must be in writing and follow one of three identification rules:
   
   • Three-Property Rule: Identify up to three potential properties.
   • 200% Rule: Identify properties whose combined value does not exceed 200% of the relinquished property’s sale price.
   • 95% Rule: If more than three properties are identified, the investor must close on properties worth at least 95% of the total identified value.
3. 180-Day Exchange Period: After the sale of the relinquished property, the investor has 180 days to close on the replacement property. This period starts the day the relinquished property is sold, and the closing must be completed by the 180th day to avoid disqualification from the exchange.
4. Like-Kind Property: Both the relinquished and replacement properties must be of like-kind, meaning they are used for investment or business purposes, not personal use.