The 1031 Exchange Timeline
There are three very important dates to consider with the 1031 Exchange timeline. When the relinquished property closes, the person conducting the exchange has 45 days to identify their potential replacement properties. In total one has 180 days to acquire the replacement property. Your exchange is completed in 180 days.
Day 0: Sell Existing Property
Close on your existing property and start looking for a replacement property.
Day 45: Identify Replacement Property
Within 45 days after closing on your relinquished property, you must identify your replacement property.
Day 180: Close on Replacement Property
Within 180 days after closing on your relinquished property, you must close on your replacement property.
Learn how 1031 Exchanges work, the benefits vs. risks, IRS rules & timing, property types, and exchange options available.
* Defined by SEC as an individual with a net worth (excluding primary residence) of $1,000,000+ or annual income in excess of $200,000 for last two years for an individual or $300,000 for a couple filing jointly.
Features 28 pages with rules, tips, examples, and more.
8 Key Steps in the 1031 Exchange Process
Tax-deferred 1031 Exchanges present a tremendous opportunity for real estate investors selling their investment property. However, the Exchange process can be complex, and a misstep can result in either a failed 1031 Exchange or the purchase of replacement property that is not suitable for the real estate investor.
As your 1031 Exchange company, Real Estate Transition Solutions will not only help you find, select and acquire suitable 1031 Exchange replacement properties throughout the U.S., but will also work closely with you to guide you through the entire Exchange process, timing, and rules. Below is our 8-step process for performing a successful 1031 Exchange.
Property owners can pay up to 42.1% in taxes related to the sale of their investment property depending upon the state the property is located and the amount of taxable gains – net proceeds less the original tax basis. The taxes applied to taxable gains are as follows:
- Federal Capital Gains Tax: 15% – 20%
- State Capital Gains Tax: 0% – 13.3%
- Depreciation Recapture Tax: 25%
- Net Investment Income: 0% – 3.8%
It is critically important to understand 1031 Exchange rules and timeline for an Exchange before getting started. IRS exchange rules are very rigid, and the 1031 exchange timeline must be strictly followed to qualify for tax deferral. Seven key rules apply to every 1031 Exchange:
- The exchange must be set up before a sale occurs
- The exchange must be for like-kind property
- The exchange property must be of equal or greater value for full tax deferral
- The property owner must pay depreciation recapture tax and / or capital gains tax on “boot”
- The taxpayer that sold the relinquished property and acquired the replacement property must be the same
- The property owner has 45 days following the close of the relinquished property to identify replacement properties
- The property owner has 180 days following the close of the relinquished property to complete the exchange.
It is always a good idea to speak to your CPA, Estate Planning Attorney and Financial Advisor to ensure they are aware of your intent to perform a 1031 Exchange and can plan accordingly.
Understanding your tax liability and setting financial and lifestyle objectives are critical first steps with every 1031 Exchange. These objectives should be based on what you are looking to accomplish today and well into the future. Identifying and selecting replacement properties should be based on key objectives including risk tolerance, cash flow and appreciation goals, liquidity, desire for management control, debt considerations, and estate planning needs.
Identifying a suitable replacement property can be a challenging and stressful process. So much so, that we recommend assessing potential replacement properties before listing your relinquished property. Several factors must be carefully considered when seeking to align the exchanger’s financial and lifestyle goals with the right ownership structure, locations, property types, and property attributes for replacement properties.
Real Estate Transition Solutions is constantly analyzing DST sponsors and offerings to recommend 1031 Exchange properties that seek to align with each investor’s financial and lifestyle goals and replacement property preferences. Accredited investors can request access to our catalog of open DST offerings vetted and updated monthly.
Once you are comfortable with the types of replacement properties available, select a realtor/broker to get your existing investment property (relinquished property) listed and under contract.
Once your relinquished property is under contract, the next step is to a select and OPEN the Exchange with a Qualified Intermediary. Required by the IRS for a valid Exchange, a qualified intermediary (also known as a “facilitator” or “accommodator”) is the entity that receives the sales proceeds upon the sale of your relinquished property, holds onto the proceeds while your Replacement Property is identified, and releases the funds to acquire the 1031 Exchange replacement property. Thus, preventing you (the Exchanger) from taking “constructive receipt” of the sales proceeds which would invalidate the Exchange. Note – the Exchange must be opened with your qualified intermediary BEFORE the close of the sale of your relinquished property.
The 45-Day Rule requires that your replacement property be identified within 45 days of the close of your relinquished property (by calendar day 45, your qualified intermediary must be notified of the identified replacement property). You do not need to acquire all identified replacement property, however after day 45, no new properties can be added to the submitted identification.
Another important milestone within the 1031 Exchange timeline is the 180-Day Rule. Within 180 days after closing on your relinquished property (135 days following the end of the identification period), you must close on the purchase of your replacement property.
Is a 1031 Exchange Right for You?
Why Real Estate Transition Solutions?
To ensure your 1031 Exchange is strategic and successful, it is essential to work with a highly respected 1031 Exchange partner that will help you navigate the complex process of understanding, vetting, and acquiring 1031 replacement property that will meet both your financial and lifestyle objectives. For over 20 years, the team at Real Estate Transition Solutions has helped investment property owners perform successful 1031 Exchanges by developing and implementing well-planned, tax-efficient transition strategies.
Our team of dedicated licensed 1031 Exchange Advisors will not only help you find, select and acquire suitable 1031 Exchange replacement properties throughout the U.S., but we will also work closely with you to guide you through the entire Exchange process, timing, and rules.