1031 Exchange Rules
1031 Exchange Rules
In order to comply with IRS internal revenue code, real estate investors must identify potential replacement
income real estate withing 45 days of the close of escrow and acquire said
income real estate (or
income real estate withing 180 days of the closing of the relinquished income real estate. Furthermore, when entering into a 1031 exchange, real estate investors must comply with one of the following rules:
The Three-Income Real Estate Rule - Dictates that the seller must identify up to a total of three potential replacement income real estate within the 180 day Acquisition Period.
The Two Hundred Percent Rule - This rule dictates that, if three or more replacement income real estate are chosen, their total aggregate value may not exceed 200% of the value of the acquired income real estate at its time of selling.
The Ninety-five Percent Exception - Finally, in the event that rules 1 and 2 are null and void, rule 3 takes precedence. This rule states that, if three or more replacement income real estate are used in the transaction, their total market value must comprise at least 95% of the value of the income real estate being relinquished.
It is worthy to note that many 1031 exchange real estate investors are drawn to tenant in common exchanges due to the pre-approved financing options available.