1031 Tax Exchange Requirements

Sellers have a maximum of 180 calendar days from the closing of the initial sale of the relinquished property to complete the exchange by acquiring replacement property(ies). Within the first 45 days of this period, a seller may designate and identify up to three candidate properties. If an exchange is not completed during this 180-day period, the trust will be disbursed and the proceeds will be returned to the investor and he/she will be subject to capital gains tax.

Certain types of property are specifically excluded from Section 1031 treatment: property held primarily for sale; inventories; stocks, bonds or notes; other securities or evidences of indebtedness; interests in a partnership; certificates of trusts or beneficial interest. In general, if property is not specifically excluded, it can qualify for tax-deferred treatment.

The relinquished property must be exchanged for other property, rather than sold for cash and using the proceeds to buy the replacement property. Both the relinquished property and replacement property must be held for productive use in a trade or business or for investment. Property acquired for immediate resale will not qualify. The taxpayer's personal residence will not qualify.

Replacement property acquired in an exchange must be "like-kind" to the property being relinquished. All qualifying real property located in the United States is like-kind. Personal property that is relinquished must be either like-kind or like-class to the personal property which is acquired. Property located outside the United States is not like-kind to property located in the United States.