1031 EXCHANGE GUIDE ...

HOW DOES A 1031 EXCHANGE WORK?

The first requirement for a 1031 exchange is that both the property to be disposed of and the new property to be purchased be like-kind. This is one of the most misunderstood concepts in 1031 exchanges. Like-kind relates to the use of the properties. Any real property used for productive use in a trade or business or for investment qualifies as like-kind to other real property held either for productive use in a trade or business or for investment. You can dispose of a rental duplex to buy a strip mall. You can dispose of a warehouse and buy a condominium that you intend to hold for investment. In addition, raw land held for investment qualifies for 1031 treatment whether or not you had it leased.

Example 1:

Roger and Monique own a house they bought in 1974 and have rented it out ever since. They want to sell it and buy a condominium in Seattle to rent out .

Does this qualify as a 1031 exchange? Yes, both properties are held for income or investment purposes.

Example 2:

Roger owns an office building that he leases to other Lawyers and Professionals. Can he exchange the building for a piece of raw land on which to build an apartment building that he will hold for the rental income?

Does this qualify - Yes, investment property can always be exchanged for raw land held for income or investment purposes.

 

This guide serves as a reference guide and should not substitute for professional consultation . Please check with your Accountant, CPA, Attorney or Other Qualified Expert.
 

 

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