1031 Exchange Calculator
This calculator will help you to determine the tax deferment realized by performing a 1031 tax exchange rather than a taxable sale. Click on the second tab to calculate the 45 & 180 day property exchange deadlines.
Like-kind Exchange Deadline Calculator
Quickly calculate the 45 & 180 day deadlines on your 1031 tax exchange.
45 Day Deadline: Must identify potential like-kind replacement properties to the qualified intermediary no later than midnight of the 45th calendar day following the close of the relinquished property sale transaction.
180 Day Deadline: Must complete the 1031 exchange transaction, which includes the conveyance of title to all of your like-kind replacement properties that you intend to acquire, no later than the earlier of:
- midnight of the 180th calendar day following the close of the relinquished property sale transaction, or
- the due date of your Federal income tax return for the tax year in which the relinquished property was sold, including any extensions of time to file.
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A Brief Guide to 1031 Exchanges
A 1031 exchange refers to a specific type of like-kind property sale that can save businesses thousands of dollars in deferred capital gains tax. Only available for commercial or investment properties (no primary residences or vacation homes qualify), the 1031 exchange allows the seller of one property to roll the proceeds into the purchase of a like-kind property, thereby deferring the capital gains tax.
While detailed information is available on the IRS website it helps to understand the rules, requirements and basics of how a 1031 exchange works.
Types of 1031 Exchanges
There are four types of like-kind exchanges qualifying for 1031 status:
- Simultaneous 1031 exchange – a property is sold or swapped for a like-kind property
- Delayed 1031 exchange – a property is sold, and a like-kind property is purchased within a fixed timeframe to allow the investors to defer capital gain tax
- Improvement/construction 1031 exchange – a property is sold, and a like-kind property is purchased for less, in order to invest the balance in renovations and improvements
- Reverse 1031 exchange – a property is purchased before a like-kind property is sold to fund it
The most common exchange is the delayed 1031, though investors or businesses may take advantage of a reverse or construction 1031 as circumstances dictate.
While all like-kind exchanges present opportunities, knowing which type of exchange you will be filing will define the specific IRS rules to be followed.
Knowing the Rules
While seemingly simple, the rules governing 1031 exchanges are nuanced with both opportunity and risks. For example, properly defining “like-kind” to match the federal restrictions of this term defines which properties will or will not qualify for 1031 status. The impact of this single definition is crucial and can mean the difference in thousands of dollars in taxes owed.
Conversely, other rules like the timing of a purchase, are more unbendingly ironclad. The rigidity of these rules allows you to plan your sales and property purchases accordingly, knowing immediately if they will or could qualify for any type of 1031 status. A 1031 is not something you will or can do after-the-fact, these are always premeditated, deliberately timed exchanges.
The main rules to consider for 1031 distinction are rules governing like-kind properties, timing for property identification and property purchases, the full reinvesting of the sold property’s value, and how long the property is held after purchase.
Requirements of Like-kind Properties
- Both the property you sell and the property you purchase need to be held for commercial purposes.
- Both properties need to be of the same nature, meaning that most real estate properties within the United States will work, as will many business assets. This means a lot to be developed is equal to a developed property of the same value. Quality does not matter.
- Real property and personal property can both qualify under 1031 guidelines, but these are never like-kind properties (a truck is not equal to land).
- Personal property exchanges are more restrictive than the rules around real estate exchanges.
- Certain types of property are excluded from section 1031 treatment, including inventory in stock or trade; stocks, bonds or notes; Other securities or debt; Partnership interests or Certificates of Trust
One defining property of a 1031 exchange is that you are not simply selling a property and then buying another, but more that the sale and purchase combine to create one larger single transaction.
It is possible to use more than one property to equal the like-kind value of another. For example, you might sell a multi-unit dwelling to purchase a few single-family rental units that have the same value.
Timing in a 1031 Exchange
Beyond the properties being like-kind, the main restrictions of a 1031 regard time. Unlike the definitions of like-kind real estate, there is no nuance in the set timeframes to execute this type of deal. The IRS states the ONLY exception is caused by a presidential emergency, so these rules are steadfast.
A simultaneous 1031 exchange makes meeting deadlines essentially moot – all other options adhere to two unflinching time limits that start promptly on the day you file your 1031.
- 45 days: is the time you have to identify potential replacement properties. The identification will be in writing and submitted to the other party (or their intermediary). Note that it must be submitted to the OTHER party’s agent, as submission only to your own team members will disqualify your status.
- 180 days: is the time you have to receive the replacement property and complete the deal in full. Particularly important to construction 1031 exchanges as it means all renovations must be complete within 180 days or the 1031 status is nulled.
Timing in a 1031 exchange also pertains to any remaining cash or assets that will be received from the transaction. If you accept any money before the deadline, you can void your 1031 status, so intermediaries are used to hold the proceeds until all 180 days have passed.
Reinvest In Full
One more criterion for1031 status is to reinvest the proceeds of a sale in full to the newly purchased property. Of course, you can spend more than the amount you receive, but it is not possible to spend less on the new property than you earned from the sale without sacrificing 1031 status.
Additionally, the new property is not one you will be able to flip within a year – the IRS wants to see you hold on to the property for longer. There are rare exceptions but as a rule of thumb, you will need to hold a newly purchased replacement property for more than one year to satisfy the IRS.
Third Party Help
Unlike most things, there is NOT really a fully DIY option for properly executing a 1031 exchange. You will, by IRS requirement, need to use a third party, and so it is very common to use an agent or agency who specializes in 1031 code.
A 1031 attorney, accountant or tax-specialist can help you to identify like-kind properties in the marketplace, adhere to scheduling confines, manage the distribution of funds, and maximize the potential of your property transactions. Because the rules of the 1031 are so nuanced, specialists solely devoted to this section of the tax code are better able to guide you through every step of the process.
At a minimum, you will need to use a Qualified Intermediary to hold the proceeds of the deal until the time restrictions are met. Failure to do so can result in losing 1031 status and paying all applicable taxes. IRS rules prohibit you from being your own representative or using someone with close ties to you or your business.
It is also important to note, that since the 1031 exchange is tax deferred (not tax-free), your agent must help you track the basis of the sale, so you can eventually pay all necessary taxes.
The IRS warns to beware of schemes and untrustworthy/unqualified intermediaries. These charlatans may promise “tax-free” instead of tax-deferred exchanges, which should be an immediate warning sign. Additionally, they may try to get you to use vacation homes or other unqualified property or have you file for 1031 status after you have received cash from the sale.
As with all financial decisions, it is best to use a trusted financial advisor who is qualified, experienced, or better still in this case, specializes in 1031 exchanges.