4 Types of 1031 Exchanges

You know what a 1031 Exchange is and the basic rules that apply to them, but did you know that there are actually 4 types of 1031 exchanges?

According to Real Wealth Network, there are actually 4 types of 1031 exchanges that a real estate investor can participate in. With their help we’ll give you a rundown of the 4 types of 1031 exchanges you as an investor can participate in and the benefits and restrictions of participating in each.

1. Simultaneous Exchange

This type of 1031 exchange, known as a Simultaneous Exchange is what 1031 exchanges used to consist of; the simultaneous exchange of a property between two parties, relinquish and closing all with the same day. This type of exchange is much simpler in nature but isn’t very common due to the fact that it isn’t very likely that you’ll find another party willing to exchange their property for yours.

An advantage to participating in a simultaneous exchange is that you don’t require a Qualified Intermediary, but remember that the exchanging can be somewhat risky because you’re exchanging for a property you don’t know much about. Having a Qualified Intermediary can really help clarify the transaction and all it’s details.

2. Delayed Exchange

This type of 1031 exchange is the one you are most familiar with. The delayed exchange gives investors 180 days after the sale of their property to obtain a replacement property. This exchange has its rules; the three property rule, two-hundred percent rule, and ninety-five percent exception.

Asset Preservation defines these three rules of identification as follows:

Three property rule:

“A taxpayer may identify a maximum of 3 replacement properties, without regard to the fair market value of the properties.”

Two-Hundred Percent Rule:

“The taxpayer may identify any number of properties as long as the aggregate fair market value does not exceed two-hundred percent of the aggregate fair market value of the relinquished property.”

Ninety-five Percent Exception:

“The taxpayer may identify any number of properties without regard to the combined fair market value, as long as the properties acquired amount to at least ninety-five percent of the fair market value of all identified properties.”

3. Reverse Exchange

Probably the least popular of the 1031 exchange types, the reverse exchange requires you to pay in cash, up-front and unfortunately banks are not so eager to help investors participating in a reverse exchange. Simply because lenders don’t necessarily like that investors’ name is on both titles of the relinquished and replacement property at the same time.

4. Construction/ Improvement Exchange

Maybe the most attractive of 1031 exchange types, the construction/improvement exchange allows you to take any remaining funds to improve your replacement property, if and only if the replacement property costs less than your relinquished property.

For more readings visit: Real Wealth Network and Asset Preservation.

 

Want to learn more about 1031 Exchanges? Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.

Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/

 

Dalesmy Gonzalez

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.