Requirements for a 1031 Exchange by Joe Szabo, Scottsdale Real Estate Team

By Joe Szabo, Scottsdale Real Estate Team

The way the IRS determines how a property has been used usually hinges on how it’s been declared on tax returns.  If you wish to recharacterize a property, simply use it differently.  For example, a vacation home can be recharacterized from personal to business use simply by renting it out for a couple of years.  

1031 exchanges can also be used to help facilitate splitting up partnerships, joint ventures, and other types of co-ownerships of property without triggering unwanted taxes.  If one party wants out of such an arrangement, he or she could simply receive the appropriate portion of the sales receipt, paying his or her own taxes, while the other(s) exchange property.

There are too many requirements, rules, exceptions, time restrictions, and other formalities governing 1031 exchanges to explain them all here.  A qualified professional should always be consulted to help lead you through this often-complicated process.

Nevertheless, the basic requirements for making a fully tax-deferred 1031 exchange fall in to six general categories:

1)                   Properties exchanged must be for business use or held for investment.

2)                   The price of the replacement property must be equal to or higher than that of the relinquished property.

3)                   The amount of the mortgage on the replacement property must be equal to or higher than that on the relinquished property.

4)                   The taxpayer must not get actual or constructive receipt of the proceeds.

5)                   Qualified intermediaries or accommodators must be used to facilitate the exchange.

6)                   Identification and closing time requirements must be met.

Please note that this Scottsdale Real Estate Blog is for informational purposes and not intended to take the place of a licensed Scottsdale Real Estate Agent. The Szabo Group offers first class real estate services to clients in the Scottsdale Greater Phoenix Metropolitan Area in the buying and selling of the best Luxury homes in Arizona.  Award winning Realtors and Re/MAX top producers and best real estate agent for Luxury Homes in Scottsdale, The Szabo group delivers experience, knowledge, dedication and proven results. Contact Joe Szabo at 480.688.2020, info@ScottsdaleRealEstateTeam.com or visit www.scottsdalerealestateteam.com to find out more about Scottsdale Homes forSale and Estates forSale inScottsdale and to search the Scottsdale MLS for Scottsdale Home Listings.