REAL ESTATE
by Jim Coleman, REALTOR®
EXCHANGE RULES ARE VERY STRICT
Investment owners of real estate have great benefits when they take advantage of the Tax-Deferred 1031 Exchange provisions of the IRS Code. This column has treated this topic in detail in the past, but there are four fundamental rules to reiterate that property owners often ignore, neglect or simply do not understand. I'll mention them briefly here.
1. Property must be held for investment or productive use in trade or business.
2. Property must be exchanged for like-kind property. This item is probably the most misunderstood. Essentially, all real estate is like-kind. One does not have to exchange a duplex for a duplex, or a lot for a lot, as examples. A rental house might be exchanged for a commercial building, or a parcel of land for an industrial property. There are other elements that need to be recognized, such as balancing the equities, etc., but the like-kind rule and definition has to do with the nature and use of the property, not an exact description or type for another that is identical.
3. Replacement property must be identified with 45 days after the relinquished property is transferred.
4. The exchange must be completed (replacement property received) by the earlier of 180 days or the tax return due date.
Another critical matter is that the transaction needs to be handled by an approved
Accommodator or Intermediary to hold the funds and administer the documents during the escrow contract period and process. It is very important that if a party is contemplating an exchange, inform the real estate agent at the outset in order for all the essential deadlines to be made and proper arrangements made to effect the exchange within the legal guidelines; this is crucial in order to assure proper tax treatment.
St. George REALTOR® Jim Coleman is Associate Broker and Partner/Owner of ERA Brokers Consolidated. He works with Buyers and Sellers and Specializes in Residential, Investment and Commercial Real Estate, including Resort and Second Home properties. He holds National Designations of Accredited Buyers Representative (ABR), Certified Residential Specialist (CRS) and Seniors Real Estate Specialist (SRES). You can contact him by e-mail at Jim@RealtorJimC.com. Call: (435) 674-0600; or write: Jim Coleman, 201 East St. George Boulevard, St. George, Utah 84770. This and other columns are available at www.RealtorJimC.com/articles.