Are you looking to exchange your investment property for another? The IRS Section 1031 has many moving parts, but, in general, it is designed to allow the swap of one investment property for another. Although most swaps are taxable as sales, if the exchange meets the requirements of 1031, you'll either have no tax or limited tax due during the process. Need some help with the ins and outs of the process? Here are some things to know about 1031 exchange investment property rules: 

 

What is a 1031 Exchange? 

 

IRS Section 1031 or the 1031 Exchange rule was designed to allow the swap of one investment property for another. It was permitted to allow owners of investment and trade or business property to defer the gain on the sale of property by acquiring like-kind replacement property. Today, it is utilized for the same purpose. 

 

Like-Kind Properties

 

“Like-kind” properties sound like a broad term because of the rules being quite liberal with what it considers to be like-kind. The property types don’t have to be the exact same for the exchange. You don’t have to exchange a cabin for a cabin. You can exchange a condo for a cabin even though these two properties aren’t exactly the same. Here are some examples of properties that follow the 1031 exchange investment property rules: 

 

  • Vacant land

  • Net-lease property

  • Commercial buildings

  • Rental properties

  • Farms or ranches

  • Resort property

  • Industrial property

  • Retail property

  • Office buildings

  • Senior-living centers

  • Restaurants

 

If you aren’t sure about a property, then you can ask the TN Smoky Mtn Realty team and we’ll have some answers for you! 

 

1031 Exchange Investment Property Timeframe Rules

 

There are two important things to remember when it comes to timeframe rules. The first thing relates to the designation of the replacement property that you are exchanging with your own property. Once you sell your property, the intermediary will receive cash from the sale. You can’t receive the cash personally or it will ruin the 1031 exchange. Within 45 days of the sale of your property, you have to choose a replacement property and submit it in writing to the intermediary. 

 

The next thing to remember is the timing of your new property’s closing. You have to close on the new property within 180 days of the sale of the old property. You can start counting days when the sale of your old property closes. 

 

Tax Implications

 

After the intermediary acquires the replacement investment property, you may have some cash left over from the exchange. If so, they will pay it to you at the end of the 180 days. That cash will be taxed as partial sales from the exchange

 

Vacation Home Guidance

 

Capital Gain Tax Calculator

 

Ready to start looking for your next Smoky Mountain investment property? At TN Smoky Mtn Realty, we can help you find the perfect property and walk you through 1031 exchange investment property rules. Give us a call at 865-280-2569 today!