If you own property and are planning on selling that property and purchasing new property, you’ll want to consider the benefits and drawbacks of a 1031 exchange in your particular situation. There are many reasons a 1031 exchange can be beneficial for both individuals and businesses, including but not limited to:

• Providing investors with additional leverage to purchase higher value property. Down payments can be increased with the money saved on taxes, boosting buying power for the replacement property.
• Allowing property owners to diversify or consolidate as needed. Owners can exchange multiple properties for one single property, or exchange one single property for multiple properties.
• Increasing overall cash flow. Property owners can increase their cash flow and total income by utilizing a Section 1031 exchange. For example, if an owner’s current property isn’t generating revenue, they can exchange it for another property that will.

Types of 1031 Exchanges

There are three types of 1031 exchanges:

Simultaneous Exchange

This type of 1031 exchange is largely self-descriptive. With this type of exchange, the timing of the sale of the original property and the purchase of the replacement property must occur at the same time, or simultaneously.

Delayed Exchange

If the idea of having a replacement property ready to purchase exactly when your current property sells makes you nervous, a delayed exchange may be a better option. The replacement property must be identified no later than 45 days after the original property has sold or transferred. The purchase of the replacement property must be completed no more than 180 days after the original property has sold or transferred.

Reverse Exchange

If you acquire your replacement property prior to the sale or transfer of your original property, you may be able to get a reverse exchange. This process is generally more complex than either simultaneous or delayed exchanges and involve the need for an Exchange Accommodation Titleholder (EAT). Replacement property must be identified in 45 days or less after the replacement property’s title is transferred to the EAT, and the transaction must be completed 180 days or less after the transfer to the EAT.

1031 Exchange Timelines

Exchange timelines are important to understand because they play a significant role in whether or not a capital gain from the sale of a property will be considered taxable or not. Here’s what to know about the 45 and 180 day time frames for 1031 exchanges.

Identification — 45 Days

During the identification period, the property seller will identify other “like kind” properties that they would like to purchase. In some cases, more than one property may be selected. The potential replacement properties must be identified no later than 45 days after the sale of the original property, even if the last day falls on a weekend or holiday.

Exchange — 180 Days

During the exchange period, the property seller will receive the “like kind” property. The transaction must be completed 180 days or less after the original property was sold, or, the due date for the property seller’s tax return for the year the exchange occurred — whichever is earlier. Like with the identification period, if the 180th day falls on a holiday or weekend, the timeline is still not extendable.