1031 Exchange for Rental Property Owners

A Section 1031 exchange can allow a qualifying real estate investor to defer recognition of gain when investment or business real property is exchanged for qualifying like-kind real property. The rules are technical, so this is an area where owners should involve a qualified tax professional and exchange intermediary early.

Real property is the key

Current Section 1031 treatment generally applies to qualifying real property held for investment or business use. Property held primarily for sale and a personal residence do not automatically qualify just because they are real estate.

The deadlines move quickly

In a typical deferred exchange, replacement property generally must be identified within 45 days after the relinquished property is transferred, and the replacement property generally must be received within 180 days or by the applicable tax-return deadline if earlier.

Talk to the professionals before closing

The structure matters. Waiting until after a sale closes can be too late to create the exchange you intended. Speak with a qualified intermediary and tax adviser before the transaction is completed.