Four Key Requirements for Exchanges
Qualified Use | To conduct a 1031 exchange, both the transferred property and the acquired property must be held for investment purposes or used in a business or trade.
Fair Market Value and Equity | For the exchanger to defer all of the capital gain, the acquired property must have a fair market value greater than or equal to the fair market value of the transferred property. The exchanger must also reinvest all of the equity held in the old property as equity in the new property.
Title | Generally, the exchanger must hold title in the new property in the same way as they held title in the old property.
Exchange Agreement | An exchange agreement with a qualified intermediary must be fully executed by the closing of the relinquished property. This prevents constructive receipt of the sales proceeds.
The exchanger must identify the replacement property in writing and send it to the qualified intermediary within 45 days from the closing of the relinquished property.
The replacement property must be acquired the earlier of:
(1) 180 days from the closing of the sale of the relinquished property -or-
(2) the due date for the exchanger’s tax return (including extensions) for the year in which the relinquished property was sold