1031 Exchange Rules
1031 Exchange Rules
1031 Identification Rules
All exchanges require that property owners identify up to three potential replacement
commercial properties within 45 days of the close of escrow on the relinquished commercial property. Furthermore, acquisition of said identified
commercial properties must occur within 180 days of close on the relinquished commercial property. All exchanges must comply with at least 1 of the 3 following rules:
Three-Commercial Property Rule - allows the exchanger to identify up to, but no more than 3 potential replacement commercial properties within the acquisition period.
The Two Hundred Percent Rule holds that, if three or more commercial properties are identified as replacement commercial properties, their aggregate market value must not exceed 200% of the value of the commercial property sold.
The Ninety-five Percent Exception is used in the event that rules 1f and 2 do not apply. In such a case, the aggregate market value of the commercial properties acquired in the exchange must comprise at least 95% of the closing value of the commercial property relinquished.
Many 1031 exchangers prefer buying 1031 property as tenancy in common because of the ease of completing the transaction and closing on commercial properties. This is due, in large part, to many pre-arranged financing deals available.