How Long Do You Have To Hold A 1031 Exchange Property?
There is no fixed rule once you acquire the second property but you have to hold it long enough to show the IRS that you are holding the second property for trade or business. This means you are occupying a building, running a business, or it is an investment held for appreciation or you lease it to people for use.
What Are The Rules Of The 10-31 Exchange?
The first rule of the 1031 exchange is that the property must be real estate. It can no longer be a business or equipment, or anything like that. Once you close your first escrow, the proceeds have to be delivered to a neutral third party and they will hold those funds; the taxpayer cannot receive them. Next, there are just 45 calendar days to designate a replacement property and you are allowed to designate up to three properties. Then, you have 180 calendar days to close escrow on a replacement property. Your replacement property has to be acquired, which means it has to be deeded to the same party who sold the first property. Sometimes, people have a business and the business sells the property, and they think that they can acquire the second property personally. The party who sold the first property has to take title to the second property.
Do I Need An Attorney For A 1031 Exchange?
Many people think that they do not need an attorney for a 1031 exchange because they think a real estate broker can handle it or the escrow can handle it. The escrow will coordinate with your exchange accommodator and they will wire the money wherever you tell them to wire the money. That does not mean that the escrow understands all the legal details. The rules of the 1031 exchange are very technical and they are interpreted very strongly against the taxpayer. What you do not want to do is to try to save some money by not hiring an attorney and innocently run across some obstacle, which cannot be reversed, after escrow has closed.
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