1031 Exchanges

IRC §1031 Statutory Requirements 

• Properties must be held for "productive use in a trade or business" or "for investment" 

• Properties must be of "like-kind" 

• The exchange must be a reciprocal transfer of properties, not a sale followed by a re- investment 

• Properties held primarily for sale are excluded 

Identification of Replacement Property 

• Identity Replacement Property within 45 calendar days of closing 

• Identification must follow 3-property or 200% rule, be in writing, signed and submitted to CDEC 

• There are no extensions to the 45-day identification period 

Receipt of Replacement Property 

• Replacement Property must be acquired by the EARLIER of: 

• 180 days from date of the Relinquished Property closing; or 

• Due date for the tax return for the taxable year of the exchange, determined with regard to extensions 

• There are no extensions to the 180-day exchange period 

Safe Harbor Exchanges and the (g) (6) Restrictions 

• Taxpayer cannot receive cash from the trust account until: 

• After the end of the 45-day identification period if no Replacement Property is identified; or 

• After the end of the 45-day identification period AND after Taxpayer has received all the identified property to which Taxpayer is entitled; or 

• After the expiration of the 180-day exchange period 

Reverse Exchanges 

Revenue Procedure 2000-37: Reverse Exchanges 

• Exchange Accommodation Titleholder (EAT) acquires Qualified Indicia of Ownership in either Replacement Property (Exchange Last) or Relinquished Property (Exchange First): 

• Taxpayer and EAT enter into a written Qualified Exchange Accommodation Agreement (QEAA) within 5 business days of the date property is parked; 

• EAT must be the owner of the property for federal income tax purposes and all parties must report ownership as such 

Identification of Relinquished Property 

• Identify Relinquished Property within 45 calendar days from the date the EAT acquires the parked Replacement Property 

• Identification must be consistent within 3-property or 200% rule 

Receipt of Parked Property 

• Property can be held by the EAT for a maximum of 180 days 

• For parked Replacement Property, the EAT must transfer the parked property to the taxpayer 

• For parked Relinquished Property, EAT must transfer the parked Relinquished Property to a third-party purchaser 

• QEAA can include "put and call" provisions 

Permissible Agreements Defined Under the Rev. Proc. 

• EAT may also act as Qualified Intermediary 

• Taxpayer can loan funds directly to the EAT or guarantee any debt required to acquire parked Replacement Property 

• Taxpayer can actively manage parked Relinquished or Replacement Property 

• Taxpayer can oversee construction of improvements to parked Replacement Property

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This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client.

For further information please contact me at www.kmckernanlaw.com kevin@kmckernan.com or 718-317-5007.