Purely Investment Purposes
The 1031 exchange is solely for investment properties, and it is not meant to have any personal benefits. This section was added to encourage investments, so if you’re simply selling the home you live in now to find another home, you will not qualify. However, if you can designate your property as an investment property for business purposes, then you may qualify for a 1031 exchange.
Once you designate a property for the 1031 exchange process, you need to close on the new property within a period of 180 days. Within this period, you need to designate the property, sell it, designate the replacement property and close on it. Therefore, it is important that you start your search for the replacement property even before you designate the property to be sold in the exchange in order to avoid any legal problems regarding this requirement. It is also important to note that you can designate not just one but multiple properties for replacement.
Well before you sell the property to be exchanged, you must retain the services of a qualified intermediary. This qualified intermediary will draft up the necessary documents for the taxpayer to review and sign. When the exchange occurs, the funds from the sale of the old property will be transferred to the qualified intermediary, who's in charge of transferring the funds towards the replacement property once the taxpayer closes. Given they are in charge of overseeing the transfer of such a large amount of money, it is extremely important that the taxpayer finds a reputable intermediary with references.
If your not sure if you qualify for a 1031 exchange as an investor, we can help you. Fill out our contact form below, and one of our real estate experts will reach out to see if you may qualify, and if so they can help you through the exchange process.