EXCHANGE RULES & TIMELINES
We Assist You With The Rules
Treasury rules and regulations apply to all 1031 tax deferred exchanges and we employ our expertise and experience to help you comply.
Qualifying Properties
For a property to qualify for deferred gain treatment under Section 1031, it must be “like kind”, as defined under the Code as follows: “property held for productive use in a trade or business, or property held for investment”.
Examples of qualifying properties include (but are not limited to): multi unit rentals, commercial income properties, vacant land, agricultural land, as well as unimproved real property held for investment.
If a property is only partially used for income producing purposes the income producing portion may be exchanged. If you have a specific question about your property please feel free to contact us toll free at 800-733-1031 for more information.
To Defer Income Taxes:
Two basic rules allow you to completely defer income taxes on the gain realized from the sale of the relinquished property:
1) The purchase price of the replacement property must be equal to or greater than the net sales price of the relinquished property
2) All cash or other proceeds received from the sale of the relinquished property must be used to acquire the replacement property.
IRS Specific Time Deadlines:
All investors are allowed 180 calendar days from the transfer date of the relinquished (sale) property to acquire the replacement property(ies). If an investor’s 180th day falls after the due date of their income tax return they must file an extension in order to receive the benefit of the full 180 days.
Once the relinquished property has been transferred the timeline begins. The first 45 days of the 180 day period is called the Identification Period and in this time period the replacement property must be identified. Please note this period is the shortest period in the exchange. If the Property Identification requirements are not met, the relinquished property transfer will be taxable. For more information on Property Identification requirements, please review our “Property Identification” page, which will provide you with all you need to know about these requirements.
Once the identification period is completed, the exchange period begins. During the exchange period Mercury Exchange will provide you with courtesy reminders to help meet any deadlines up until the replacement property is acquired. Once the replacement property has been acquired within 180 days of the initial transfer of the relinquished property, the exchange is complete.
If you should have any questions concerning the 180 day timeline discussed above, feel free to contact us toll free at 800-733-1031 for more information.
Property Identification Requirements:
There are 45 calendar days from the transfer date of the relinquished property in which to identify replacement property(ies). The identification must be in writing, signed by the investor, and received by the intermediary or other qualified party by way of fax, mail, or hand delivered by midnight of the 45th day . Mercury Exchange will provide you with the Identification letter form so you may complete your identification.
When identifying a replacement property/properties you may choose to identify by choosing either the three property rule, the 200% rule or the 95% exception.
Three Property Rule:
Three properties of any value may be identified one of which must be acquired.
200% Rule:
Any number of properties may be identified as long as their aggregate fair market value does not exceed 200% of the aggregate fair market value of the relinquished property.
95% Exception:
f more than three properties are identified and the aggregate fair market value exceeds 200% of the fair market value of the relinquished property, 95% of the aggregate fair market value of the identified properties must be acquired.
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To learn more about why you should consider a 1031 exchange, Click Here.
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