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What are the rules for a 1031 exchange?

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Quick Answer

There are several rules to note for a 1031 exchange, such as it can only be used for business property or property for investments, nothing personal, Forbes states. Another important rule is that 1031 exchanges are very broad in terms of what two items can be exchanged, such as apartments for land.

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Full Answer

Most 1031 exchanges are delayed and involve a third party, according to Forbes. In these delayed exchanges, the third party holds the cash after the property has been sold and uses that cash to purchase the replacement. Since this form of 1031 exchange is common, it is important to note that there is a 45-day limit for the seller to state what property he wants to purchase. Up to three properties can be chosen, but one has to be closed on eventually.

Another key rule when performing a 1031 exchange is that there is a 180-day time limit to close on a property, states Forbes. This time limit does not start when the person chooses the properties he wishes to close on, but instead it starts when he sells his property for the exchange. That means that the 45-day limit to choose a property in writing is included in the 180-day time limit.

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