By Shannon Kinnard, VP, Exchange Officer, Genesis Bank Exchange
Embarking on a 1031 exchange journey opens doors to exciting possibilities in real estate investment. One crucial step in this process is identifying replacement property—a decision that can significantly impact the success of your exchange. At Genesis Bank Exchange, we understand the complexities of this process and are here to guide you through it.
Join us as we delve into the basics of identifying replacement property and address some of the most frequently asked questions, empowering you to make informed decisions and maximize the potential of your investments.
Timelines:
Methods of Identification:
There are three rules of identification, and the exchanger must utilize one of the following options in order to meet the exchange requirements:
FAQs:
How do I identify replacement property?
Many Qualified Intermediaries, like us, provide a designation notice form that you can use to identify the replacement property. The form must be completed, signed, dated, and returned to the Qualified Intermediary within the 45-day identification period. Under IRS regulations, the replacement property/ies must be unambiguously identified—typically with the street address and/or assessor’s parcel number (APN) and/or legal description. If you are purchasing a tenant-in-common interest, or other fractional ownership interest such as a Delaware Statutory Trust (DST), you must also indicate the ownership interest percentage you intend to acquire. If you are using the 200% rule, it’s recommended to include the value of the property/ies.
Can I amend my identification or get an extension?
If you are still within the 45-day identification period, you may amend (or even revoke) your identification form. After the 45-day deadline, no further changes are permitted, and you must acquire one or more of the previously identified properties to defer taxes. The only time the 45-day or 180-day deadlines are extended is when a disaster relief notice formally issued by the IRS grants an extension under Rev. Proc. 2007-56.
I’ve read that the relinquished and replacement properties must be like-kind. What does that mean?
Properties are like-kind to each other if they are of the same nature, even if they differ in grade or quality, and must be used for business, trade, or investment. Personal residences or properties held for resale (such as “flips”) do not qualify for 1031 treatment. As some examples of like-kind properties, you may sell a condo and acquire a commercial property, sell vacant land and acquire a single-family residence, or sell a hotel and acquire a medical office building, etc. Also of note, you can exchange real property from state to state, but properties outside of the U.S. are not considered like-kind.
As you can see, there are many factors to consider when identifying replacement property in a 1031 exchange. In addition to you seeking guidance from your tax advisor and/or attorney, our team of experts at Genesis Bank Exchange is here to help you navigate the complexities of 1031 Exchanges and 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.