Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind.
When is the deadline for a 1031 exchange?
For example, if you dispose of your relinquished property as part of a 1031 Exchange and the relinquished property sale closes on December 1st of any taxable year, the 45 calendar day identification deadline and the 180 calendar day exchange period both land in the following income tax year.
What are the rules for a partial 1031 exchange?
To execute a partial 1031 exchange, follow all the same rules and restrictions as a standard exchange transaction. If you know the exact amount needed for acquisition of the replacement property, you may request that a certain dollar amount is distributed to you directly at the closing of the relinquished property’s sale.
Can you dispose of one property in a 1031 exchange?
You can dispose of one or more relinquished properties and acquire one or more replacement properties as part of a single 1031 Exchange transaction. If multiple replacement properties are involved in the same 1031 Exchange transaction and not all of the replacement properties are acquired it may result in a partial 1031 Exchange.
What kind of property is eligible for 1031 like-kind exchange?
Generally, rental homes, condo buildings, and apartments are all like-kind, so are eligible for 1031 like-kind exchanges. Such property types are like-kind for two reasons. First, they generate income through lease and rental agreements. Second, they are not owned primarily for personal use.
How does a deferred exchange qualify under Section 1031?
They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties. To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction).
What does like kind mean in IRC Section 1031?
Many people assume “like-kind” means, for example, exchanging an apartment building for another apartment building, but this is not true. IRC Section 1031 does not limit like-kind property to types of real estate. All real property is like-kind to other real property.
