EXCHANGE GUIDELINES

The §1031 Treasury Regulations provide several safe harbors for taxpayers to utilize with the qualified intermediary safe harbor being the most common.

IRC §1031 requires taxpayers to identify potential replacement property within 45 days from the date of closing the relinquished property and to complete the exchange in 180 days.

Both the relinquished and replacement property(ies) must qualify as property held for productive use in a business or trade (generally income property or property or property where's one's business is located) or for investment (raw land).

To properly defer all capital gains tax, an exchanger must purchase replacement property or properties that equal the net sales price of the relinquished property. Additionally, all the equity derived from the exchange of the relinquished property must be reinvested. Any cash received by the taxpayer will be considered taxable “boot.”