1031 Exchange Rules
1031 Exchange Rules
1031 Exchanges require an acquisition period of 180 days, during which the
real estate investor must identify potential properties for the exchange (within 45 days) and acquire said
income real estate or income real estate. The acquisition period begins at the close of escrow on the relinquished income real estate. Furthermore, all 1031 exchanges must adhere to one of the following rules:
The Three-Income Real Estate Rule states that the exchanger must identify up to, but no more than three potential income real estate during the acquisition period.
The Two Hundred Percent Rule holds that, if three or more income real estate are identified as replacement income real estate, their aggregate market value must not exceed 200% of the value of the income real estate 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 income real estate acquired in the exchange must comprise at least 95% of the closing value of the income real estate relinquished.
Many 1031 exchangers prefer buying 1031 exchange real estate as tenant in common because of the ease of completing the transaction and closing on income real estate. This is due, in large part, to many pre-arranged financing deals available.