1031 Exchange Frequently Asked Questions

By: Shannon Kinnard

A 1031 exchange is a tax strategy which allows investors to defer taxes from the sale of a qualifying property. While that may sound simple enough, the exchange process can be multifaceted and require careful coordination. Below are the answers to some common frequently asked questions:

1. How do I choose a Qualified Intermediary?
   • When looking for a Qualified Intermediary (“QI”), you’ll want to consider several factors such as the security and safety of your funds, customer service, and expertise of the QI.
   • Please see: “From Security to Expertise: The Essentials of Choosing a Qualified Intermediary For Your 1031 Exchange”

2. How do I get started in a 1031 exchange?
   • Once you’ve found your Qualified Intermediary, you’ll need to provide relevant transaction information to begin the process of setting up the exchange prior to the sale closing.
   • Please see “A Brief Guide to Starting a 1031 Exchange”

3. Are there timing requirements in a 1031 exchange?

• • Yes, there are strict IRS timelines for identifying and acquiring replacement properties. An investor has (i) 45 days from close of the sale to identify their potential replacement properties and (ii) 180 days from close of the sale to acquire one or more of those properties.
  • Please see “Identifying Replacement Property Basics & Frequently Asked Questions”

4. What costs can be paid from the 1031 exchange?

• • Closing costs paid from exchange funds must be allowable “exchange expenses”, which are typically expenses directly related to the sale of the relinquished property or purchase of the replacement property.
  • Please see “Closing Costs in a 1031 Exchange”

5. Do I have to get a loan on the replacement property to satisfy the 1031 exchange requirements?

• • Not necessarily. It’s a common misconception that an exchanger must have equal or greater debt on the replacement property (the property they’re acquiring). The actual rule is that the exchanger must replace the value of the debt they had on the relinquished property (the property they’re selling).
  • Please see “The Debt Replacement Requirement in a 1031 Exchange”

Strategic planning with your tax advisor and our team of experts at Genesis Bank Exchange can help maximize the potential of your investments. If you’re interested in learning more about the 1031 exchange process and how it may benefit you, connect with the Genesis Bank Exchange team by calling 800.797.1031, or explore further details on our website: https://www.mygenesisbank.com/1031Exchange.

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