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Ruth Bates

831.359.2212 ruthbates1@gmail.com

CalBRE#01799929

HAPPY SUMMER! WHAT IS A 1031-EXCHANGE?

IRS Code 1031 allows an owner to sell their INVESTMENT PROPERTY and purchase a replacement property of “like kind” without a tax on the profit.

PRIMARY HOMES and VACATION

HOMES do not qualify for a 1031 Exchange.

LIKE — KIND PROPERTY: 1031

Exchanges must be done with “like-kind” properties. The rules for “like-kind” have evolved over time. In 1984, the definition of “like-kind” was greatly expanded. Before 1984, one could only buy a house for a house and an apartment building for an apartment building. A single-family residence can now be exchanged for a duplex, raw land for a shopping center, multiple condo units, or an office for apartments. Any combination will work.

THREE-PROPERTY RULE: One can identify up to three properties to purchase as long as you close on at least one of them. The Federal government limits the rollover process to three properties. Most investors limit themselves to up to three properties in order to avoid being subject to more complex tests or simply minimizing the necessary paperwork.

200% RULE: You can identify any number of replacement properties you want to purchase as long as their combined fair market value does not exceed 200% of the property you are releasing. Therefore, you actually can identify more than 3 properties.

45-DAY TIME LIMIT TO IDENTIFY:

There is a strict 45-day time limit to identify your replacement properties with 45 days of closing on the sale of your original property. The 45 days includes weekends and holidays.

180-DAY DEADLINE — TO CLOSE: One the replacement property is chosen, then the investor has 180 days to close on the replacement property(ies).

“BOOT”: Boot is any money left over and boot is taxable. For example, if you sell a $1,000,000 property and then replace it with an $800,000 property, you will have $200,000 in “boot” and you will owe taxes on that gain.

I am very familiar with 1031-exchanges and am happy to help.

Call, email, text anytime and Get Results With Ruth!