1031 Exchange Requirements

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1031 Exchange Requirement

The four requirements for all 1031 exchanges include:

The exchanger must reinvest 100% of the monies earned by the sale of the relinquished property into the replacement property or properties.

The amount of equity ( property value minus loan amount) held in any replacement property must equal or exceed that held in any property relinquished during the exchange.

Third 1031 Exchange Requirement: The owner must use a Qualified intermediary ( 1031 exchange facilitator or 1031 exchange accommodator) to hold the funds from the first sale until purchase of the new property is closed. The Qualified Intermediary (QI) acts as the middle-man in the 1031 exchange, providing paperwork, oversight, escrow services, and expertise necessary to ensure that the transaction legally qualifies as a 1031 exchange.

Fourth 1031 Exchange Requirement: IRS rules require the exchange of like-kind property. This does not mean that 1031 exchange properties must be of the exact nature as the relinquished 1031 exchange property. Any real property held for investment or real property used in a trade or business can be exchanged in a 1031 exchange for any other real property held for investment or used in a trade or business.