1031 Exchange Basics

The tax deferred exchange, as defined in Section 1031 of the Internal Revenue Code of 1986, offers investors the opportunity to obtain wealth and save taxes.

The IRS requires a neutral third party, or facilitator, as a qualified intermediary (QI) to facilitate the exchange. Benchmark Exchange, LLC is a QI in facilitating 1031 exchanges.

A 1031 exchange gives the exchanger the ability to reinvest the properties equity in a replacement property. To qualify for a 1031 a ‘like-kind’ property must be used to replace the relinquished property.

Exchanges must be completed within the ISRS guidelines. The Exchanger has 45 calendar days from the date of the relinquished property closes to identify potential replacement properties. The purchase of the replacement property must be completed within 180 days. The IRS does not allow extensions for either the 45-day or the 180-day period.

1031 Exchange Identification Rules:

3 Property Rule
Investors may identify up to three (3) potential like-kind replacement properties, without regard to their fair market value. The limit is on the number of properties.

200% of FMV Rule
Investors may identify any number of potential like-kind replacement properties, but the total fair market value identified cannot exceed 200% of the fair market value of the relinquished (sale) properties. The limit is on the fair market value of the properties.

95% Exception
Investors may identify as many like-kind replacement properties as he or she wants, but must actually acquire and close on 95% of the fair market value identified.