When doing a 1031 exchange, the most important thing is to abide by the 1031 exchange
rules. Most of the time, in a rush to defer capital gains taxes, investors forget to follow the
rules that the IRS wants them to follow. Consequently, such 1031 exchanges get invalid in
between. 1031 exchange rules were laid down long ago by the IRS, and are still the same.
Here are the 1031 exchange rules 2020 -
1) Sell your investment property first -
must sell your investment property first before buying a new one.
2) Invest in a like-kind property -
like-kind to your relinquished property. It means when you are doing a 1031 exchange
on investment property, the property you acquire must also be used for business
3) Involve a Qualified Intermediary -1031 exchange
The IRS requires you to hire a QI, who does all the work on your behalf. The QI holds
the sale proceeds and reinvests it on the closing day of the exchange.
4) Close your identification in 45 days -
you need to identify one or more replacement properties in 45 days. Don't miss the
deadline as you won't get the second chance.
5) Close your 1031 exchange in 180 days -IRS
gives you 180 days. This includes the identification period. Therefore, you cannot
afford to waste time when doing a 1031 exchange.
It's essential to abide by the rules of the 1031 exchange. Failing to meet any of the
requirements will immediately eliminate your chances of deferring capital gains taxes. So,
plan in advance!