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1031 Exchange Rules


1031 Exchange Rules

1031 Exchange rules require a property owners to identify potential replacement investment properties within 45 days of the close of escrow and acquire the replacement investment property (or investment properties ) within 180 days of close of the relinquished investment property. Furthermore, when choosing a replacement 1031 exchange investment property for the 1031 exchange, the property owner must follow one of the following 1031 exchange rules:

  • The Three-Investment Property Rule - Any three investment properties regardless of their market values may be identified by the exchanger as potential replacement investment properties for the like kind exchange, however no more than 3 investment properties may qualify.

  • The Two Hundred Percent Rule dictates that if three or more investment properties are identified, the aggregate market value of all investment properties may not exceed 200% of the value of the investment property, which was sold.

  • The Ninety-five Percent Exception dictates that in the event the other rules do not apply, if the replacement investment properties acquired represent at least 95% of the aggregate value of investment properties identified, the exchange will still qualify.

    In their 1031 exchange, many property owners benefit from buying 1031 exchange property as tenants in common because it completes their exchange and can be closed in a timely manner due to pre-arranged financing.

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