Can I Use A 1031 Exchange To Exchange One Type Of Property For Another, Like Exchanging A Vacant Lot For A Commercial Building?
Yes, you can absolutely use a 1031 exchange to exchange one type of property for another, as long as both properties are considered "like-kind" for tax purposes. "Like-kind" means that the properties are of the same nature or character, even if they differ in quality or grade.
For example, you can exchange a vacant lot for a commercial building, as long as both properties are held for investment or business purposes. You can also exchange a single-family rental property for a multi-unit apartment building, or a strip mall for a warehouse.
However, there are some rules and limitations that you need to be aware of. First, you must identify replacement property or properties within 45 days of selling your relinquished property. You can identify up to three properties of any value, or more than three properties as long as their combined fair market value does not exceed 200% of the value of the relinquished property.
Second, you must acquire the replacement property or properties within 180 days of selling your relinquished property, or the due date of your tax return for the year in which the sale occurred, whichever is earlier.
Finally, you must use a qualified intermediary to facilitate the exchange. A qualified intermediary is a neutral third party who holds the sale proceeds and uses them to purchase the replacement property or properties on your behalf. This ensures that you do not have actual or constructive receipt of the proceeds, which would trigger taxable income.
At 1031 Exchange Place, we have the expertise and experience to guide you through every step of the 1031 exchange process, from property selection and due diligence to closing and beyond. Contact us today to learn more about how a 1031 exchange can benefit you!
We'd love to guide you through the 1031 process, let us know how we can help!