1031 Exchange Rules

1031 Exchange Rules

1031 Exchanges require an acquisition period of 180 days, during which the property owner must identify potential properties for the exchange (within 45 days) and acquire said investment property or investment properties. The acquisition period begins at the close of escrow on the relinquished investment property. Furthermore, all 1031 exchanges must adhere to one of the following rules:

The Three-Investment Property Rule states that the exchanger must identify up to, but no more than three potential investment properties during the acquisition period.

The Two Hundred Percent Rule - This rule dictates that, if three or more replacement investment properties are chosen, their total aggregate value may not exceed 200% of the value of the acquired investment property at its time of selling.

The Ninety-five Percent Exception - Finally, in the event that rules 1 and 2 are null and void, rule 3 takes precedence. This rule states that, if three or more replacement investment properties are used in the transaction, their total market value must comprise at least 95% of the value of the investment property being relinquished.

It is worthy to note that many 1031 exchange property owners are drawn to tenants in common exchanges due to the pre-approved financing options available.

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