The Primary Steps to Understand 1031 Exchange Rules

Smart and wise real estate investors have in-depth knowledge of a 1031 Exchange. They are well aware of the fact that it is a commonly used taxation strategy to grow the portfolio and increase the net worth. Without considering that, achieving all that would take up a lot of time. So, you might be asking what is 1031 Exchange anyway and how does it work? Here is an overview of that to help you get a better understanding of the rules for the same. Having said that, there is numerous 1031 Replacement property in Utah and elsewhere that you can consider. Let’s now jump into the primary topic of discussion!

First, you need to understand how the IRS defines 1031 Exchange. Under Section 1031 of the IRC, like-kind exchanges are when there is a like-kind property exchange. These properties can be used for businesses or held as private property exclusively for other businesses or as investment property. This strategy is allowed under the IRC from the year 1921.

Second, you must be able to identify the eligible properties for the exchange. That said, one should note that the IRS considers real estate property to be like-kind irrespective of how the real estate has incorporated the improvement plan.

Third, one must review the five common 1031 exchange types that are mostly used by real estate investors. These are: delayed exchange, delayed/simultaneous exchange, delayed reverse exchange, build-to-suit exchange, and simultaneous build-to-suit exchange.


Fourth, follow these three most important 1031 Exchange rules:

  •  The replacement property must be greater than or equal to the one which is being sold.
  •  The property to be replaced needs to be identified within 45 days of starting the process.
  •  The like-kind property exchange must be purchased well within a time frame of 180 days.


In conclusion, one must work in a way that eliminates all kinds of capital gain taxes permanently. Also, do note that the like-kind must be used for business purposes or as an investment option. Having an exchange expert by your side is always the right thing to do especially when you are new to all these.


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