Basic Rules of the IRC Section 1031 Exchange
You may already be acquainted with the general rules of a 1031 exchange: reinvesting all the next exchange proceeds and acquiring another like-kind property with the same or greater amount of debt within a 45-day identification window, with 180 days to close after the target property is identified. Here are additional details that clarify the procedure and may help you determine whether a 1031 exchange is an appropriate tool to execute your real estate strategy.
Timelines for 1031 Exchange Transactions
You may choose three potential target properties during a 180 day period, or up to four properties, so long as their combined market value does not exceed 200% of the market value of the exchanged property.
During the 180 day closing period, construction may be performed on the target property. We can discuss how this may affect the assessed value of the target property. The important part is that any construction not completed by the 180 day closing deadline will be considered personal property.
Reverse 1031 Exchange
If you identify a target property prior to listing your investment property, it may be advantageous to perform a reverse exchange. A reverse exchange involves the following steps, with the same timelines as described above:
1. Identify Qualified Intermediary:
2. Set up an Exchange Accommodation Titleholder:
3. Purchase replacement property:
4. Submit letter to QI identifying your exchanged home as the target property for reverse exchange.
5. Sell existing property. The QI holds proceeds.
6. QI transfers proceeds and the EAT transfers title to you or your trust.
Reporting Requirements for 1031 Exchange
To report a 1031 exchange to the IRS, you must complete IRS Form 8824. This Form requires detailed information about the properties involved, and is submitted with your tax return, along with supporting documentation including closing statements, exchange agreements, and correspondence with your qualified intermediaries. Your tax preparer can assist you in calculating any gain or loss that occurred as a result of your 1031 exchange transaction.
Qualified Intermediaries and Exchange Accommodation Titleholders in Anchorage
In addition to working with a knowledgeable realtor, hiring a qualified intermediary and exchange accommodation titleholder that has sufficient experience and knowledge to guide your 1031 exchange transaction is extremely important. The potential benefits of IRC Section 1031 can only be accessed when the transaction is properly executed and reported. Contact SKB Real Estate to discuss your potential 1031 exchange today.