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1031 Exchanges

If you are holding a property as an investment then using a 1031 exchange can help you trade up or change the type of investment. For example you can change from a residential property to a commercial or a mix of properties. There are just some simple rules to adhere to.

The property sold must be "held for investment" or productive use in a trade or business. You can have all sorts of properties as an investment, apartment buildings, office buildings, multi-family dwellings, retail centers, single family rentals, vacation homes, condominiums or raw land. You can sell one type and purchase another type, for example you can sell a retail center and purchase several apartment or multi-family homes or a mix, or the other way round.

You must identify one or more replacement properties to be purchased within 45 calendar days following the sale. An easy way to do this is the Three Property Rule. The Three Property Rule is to identify up to three properties to be listed as replacements. The investor/taxpayer does not have to be in contract in 45 days although this would definitely help you to complete the final step that needs to be completed in 180 days.

Within 180 days of the sale the investor/taxpayer has to purchase one or more of the identified properties. To do this funds need to be handled by an intermediary who is qualified, your REALTOR, attorney or CPA cannot perform this role. There are several companies that handle all the paperwork for the exchange and hold the funds following the sale until the replacement property is purchased.

There are several things you want to think about when choosing an intermediary, experience, security of funds, service and price.If you have further questions about this investment strategy feel free to contact me, we are planning a seminar on this topic later in the year when we will have a speaker from one of these intermediary companies.

If you are buying or selling on or around Tredyffrin Easttown or along the Main Line we can help you,  contact us or connect

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Comment balloon 4 commentsNick Vandekar, 610-203-4543 • February 03 2007 02:57PM

Comments

Hi Nick and Trudy,

Great post.  Nicely presented. 

We are also coming up on year-end, so investors need to know that the deadline for completing a 1031 exchange is the earlier of: (1) 180 calendar day from the close of the sale transaction; or (2) the due date of your Federal income tax return, including extensions.

This means that any sale that closes after 10/16/2007 has a 180 day deadline that ends AFTER 04/15/2008, so the investors technical deadline to complete their 1031 exchange becomes 04/15/2008.  It is very easy to work around this.  File for an extension of time to file your tax return, complete your 1031 exchange, and then file your tax return.

Posted by Bill Exeter, 1031 Tax-Deferred Exchange Expert (Exeter 1031 Exchange Services, LLC) over 11 years ago

William,

Thanks, I have posted some other information on 1031's as well of which you are no doubt aware. Thanks for stopping by.

Posted by Nick Vandekar, 610-203-4543, Tredyffrin Easttown Realtor, Philly Main Line (Long & Foster Real Estate Inc 610-225-7400) over 11 years ago

Hi Nick and Trudy,

You are most welcome.  How is the investment real estate market in PA?  Has the subprime credit issues affected your investment real estate market? 

Posted by Bill Exeter, 1031 Tax-Deferred Exchange Expert (Exeter 1031 Exchange Services, LLC) over 11 years ago

Our market is pretty robust. We have a lot of varied businesses that give employment so the area is not dependant on one industry. As a result home prices have risen slightly, although days on market have inreased by about 20%. Number of homes listed this year in our area dropped by about 20-25% which reduced the inventory and depending on price it can still be considered a seller's market. Higher priced homes over a million are where the market has moved to being a strong buyer's market.

Rental homes are going pretty quickly so the investment market is quite good if you are not leveraging too much.

Posted by Nick Vandekar, 610-203-4543, Tredyffrin Easttown Realtor, Philly Main Line (Long & Foster Real Estate Inc 610-225-7400) over 11 years ago

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