Delayed exchanges under Section 1031 are highly popular among investors. As the name implies, there’s a time delay between the investor relinquishing their property and buying a second one. If you are considering a delayed 1031 exchange but don’t really know how to crack it, here are the steps.
The property owner seeking an exchange on his asset should first acquire a Qualified Intermediary. The party will facilitate the sale by drafting up an exchange agreement and tasking the closing agent to complete procedures on their end. The property will be directly-deeded to the buyer, but the proceeds will be temporarily held up until the owner of the now-relinquished property finds a replacement property no later than 45 days after the close.
For the identification, the exchanger will need to abide by certain rules. The Three-Property Rule allows them to pick three open properties regardless of fair market value. The 200 Percent Rule takes into account any number of properties whose aggregate fair market value shouldn’t be equal to twice their fair market value. The 95 Percent Rule applies to any number of properties regardless of fair market value as long as the person acquires 95% of the properties’ value. The replacement property itself should be secured within 180 days.