Question:
“I’d like to sell my rental house here and use the money to buy to exchange into a fourplex. But I’m a little concerned about 1031 exchanges. I don’t know much about them. Are they hard to do?”
Answer:
Good news:
1031 tax deferred exchanges are easy! And they’re quite inexpensive to do too…usually $1,000 or less.
Simply put, a 1031 exchange is where you sell one or more properties and use that money to buy one or more properties.
Basic rules for a standard 1031 exchange:
- Work with an agent familiar with exchanges.
- You cannot exchange your personal residence—only properties used in a trade or business, such as rental property.
- Put in your sale and purchase contract that you’re doing a 1031 exchange.
- When closing your sale, your funds must go directly to a “qualified intermediary” until you close your purchase.
- After closing your sale, you have 45 days to identify the property(s) you want to buy. You can identify up to 3 properties. (There are 2 other options you can ask me about.)
- After closing your sale, you have 180 days to close on your purchase. (Note: Never do your tax return for the year you sold your property until you close your new property.)
If you have more questions, call me. And, as always, verify the above with a tax professional.
