Four Different Types of 1031 Exchanges
The real estate market has a great tool for people to use to maximize their dollars and use them wisely – 1031 Exchange. Here are the four types…
1. Delayed Exchange
This type has rules, three of them. It is the one most people are most familiar with. The rules are two hundred percent rule, ninety-five percent exception and the three property rule. The investor is given 180 days after the sale of the property to obtain a replacement one.
Taken from mynoi.com:
Asset Preservation describes the 3 rules this way:
Three property rule:
“A taxpayer may identify a maximum of 3 replacement properties, without regard to the fair market value of the properties.”
Two-Hundred Percent Rule:
“The taxpayer may identify any number of properties as long as the aggregate fair market value does not exceed two-hundred percent of the aggregate fair market value of the relinquished property.”
Ninety-five Percent Exception:
“The taxpayer may identify any number of properties without regard to the combined fair market value, as long as the properties acquired amount to at least ninety-five percent of the fair market value of all identified properties.”
2. Simultaneous Exchange
Exchanging with another on the same day. Its that simple. The simultaneous exchange is not often seen because it is challenging to find someone else in a 1031 Exchnage wanting to or willing to exchange at the same time. One advantage? The clients do not need a qualified intermediary.
3. Reverse Exchange
Banks are not fans of this one. Typically a lender is not a fan due to the fact that the investor’s name appears on both titles of the old and new property at same time. How does this happen? The investor is required to pay cash up front for the new property. For this reason this is the least popular of the options.
4. Improvement Exchange or Construction Exchange
Have leftover funds? They can be used to improve the new property. This makes this one of the more popular options. This occurs when the replacement property ends up costing you less than the relinquished property.
We here at Kima Commercial can assist you with all 1031 Exchanges. Our team stands ready to identify the options and assist you in your commercial real estate needs. While we are based in the Raleigh, North Carolina Commercial Real Estate Market, we can assist you throughout North Carolina and have great resources and partners in all 50 states.