1031 Exchange Rules

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1031 Exchange Rules

IRS IRC section 1031 stipulates that exchangers must identify potential replacement properties withing 45 days of the close of escrow and acquire said property (or properties ) withing 180 days of the closing of the relinquished property. Furthermore, owners must comply with one of the following rules:

The Three-Property Rule - Seller must identify up to a total of three potential replacement properties within the Acquisition Period.

The Two Hundred Percent Rule - This rule dictates that, if three or more replacement properties are chosen, their total aggregate value may not exceed 200% of the value of the acquired property at its time of selling.

The Ninety-five Percent Exception - Finally, in the event that rules 1 and 2 are null and void, rule 3 takes precedence. This rule states that, if three or more replacement properties are used in the transaction, their total market value must comprise at least 95% of the value of the property being relinquished.

It is worthy to note that many 1031 exchange owners are drawn to tenants in common exchanges due to the pre-approved financing options available.