1031 Exchange Types

1031 Exchange Types

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1031 Exchange Types

There are four main 1031 exchange types of like-kind exchanges investors can choose from. The most common like-kind exchange types include simultaneous, delayed, reverse, and construction or improvement exchange. Here we’ll give you the rundown on all four types. Plus discuss blended exchanges and DSTs. Find out which are the most popular and why, and learn when to use each one.

Sometimes it’s obvious which type of 1031 exchange to use. More often, property transactions are complex and it’s not immediately obvious how or even if a transaction can qualify for a 1031 exchange. Use the information here as a guideline. Consult with Granite about the best way to structure your transaction to meet your needs.

Delayed Exchange

Property is sold and replacement property is purchased within 180 days. The replacement property must be identified within 45 days. Because of the 180-day window, this is the most popular type of 1031 exchange. Click to see an outline of the steps in a typical 1031 exchange.

Reverse Exchange

The replacement property is purchased before the initial property is sold. This is an option when the exchanger must close on the replacement property before a buyer has been found for the relinquished property. Special care must be taken with reverse exchanges. In theory, this type of exchange is very simple: you buy first and you exchange later.

Simultaneous Exchange

Initial property is sold and replacement property is purchased at the exact same time and at the same escrow office. This is the original type of 1031 exchange. Simultaneous exchanges are the oldest method of performing an IRC Section 1031 tax-deferred exchange. This type of exchange occurs when the relinquished property and the replacement property are transferred concurrently.

Improvement Exchange

Also known as a "construction" or "build-to-suit" exchange. In order to have a completely tax-deferred transaction, the exchanger must trade "across" or "up" in equity and debt. If the exchanger goes down in value when acquiring the replacement property he/she will have a tax liability on the cash or mortgage.

Blended 1031 Exchange

The blended exchange refers to combining different exchange formats (delayed, reverse, and improvement) into one exchange. This approach allows for further 1031 Exchange flexibility, particularly when more than two properties are involved in the exchange. Contact Granite and speak with a Certified 1031 Exchange Specialist to discuss how your 1031 Exchange may be structured to accomplish your investment goals.

Delaware Statutory Trusts

DSTs provide an alternative source of replacement property for 1031 exchangers, utilizing special provisions of Delaware trust law to create the investment vehicle. Exchangers who purchase units in a properly structured DST are treated as having acquired their proportionate interest in the trust-owned real estate. DSTs offer the advantages of professional real estate management and diversification.



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