- Advanced planning for the exchange. Talk to your accountant, attorney, broker, financial planner lender, or Qualified Intermediary prior to exchanging and possibly investing in a DST.
- Keep in mind these three basic rules to qualify for complete deferral:
- Receive only ‘like-kind” replacement property.
- Use all proceeds from the relinquished property for purchasing the replacement property.
- Make sure the debt on the replacement property is equal to or greater than the debt on the relinquished property. (Exception: A reduction in the debt can be offset with additional cash; however, a reduction in equity cannot be offset by increasing debt.)
- Attempt to sell before you purchase. Occasionally exchangers find the ideal replacement property before a buyer is found for the relinquished property. If this situation occurs, a “reverse” exchange (buying before selling) may be necessary.
- Miss your identification and exchange deadlines. Failure to identify within the 45-day identification period or failure to acquire replacement property within the 180- day exchange period will disqualify the entire exchange resulting in the sale of the down leg property being fully taxable. Reputable Intermediaries will not act on back-dated or late identification.
- Try doing a 1031 exchange using your attorney or CPA to hold title or funds. IRS regulations requires a Qualified Intermediary to properly complete an exchange.
- Dissolve partnerships or change the manner of holding title during the exchange. A change in the Exchanger’s legal relationship with the property may jeopardize the exchange.
If you have any questions regarding the Dos and Don'ts of 1031 Exchanges or any other exchange related matters please give Exclusive Financial Resources a call at (980) 242-2533, email Louis Herford at Louis.Herford@ExclusiveFinancialResources.com or schedule a 15-minute discussion here.