1031 Exchange Requirements
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 investment property into the replacement investment property or investment properties.
- The amount of equity ( investment property value minus loan amount) held in any replacement investment property must equal or exceed that held in any investment property relinquished during the exchange.
- Third 1031 Exchange Requirement: By law, you must use an independent third party, called a Qualified Intermediary, to hold the proceeds of the sale. The Qualified Intermediary also will prepare the legal documents required to link together, as a qualified exchange, the sale of the old investment property and the purchase of the new investment property.
- Fourth 1031 Exchange Requirement: exchanged investment properties must be like kind. For an investment property exchange this means real-investment property for real-investment property, but not necessarily land for land or a rental house for another rental house.
It is often difficult in the short 45-day time frame to locate an investment property that has the right purchase price, debt ratio, and closing schedule to meet the 1031 Exchange Requirements-and then arrange any financing that may be necessary. Because there is a steady supply of tenants in common investment properties available they are an ideal solution for exchangers seeking management free 1031 exchange properties with steady income.