Mistakes to Avoid When Doing a 1031 Exchange
Our Ultimate Guide to 1031 Exchanges provides a very comprehensive understanding of how this vehicle works and why investors love it for maximizing profits and minimizing taxes. We also walk you through the step-by-step process of actually doing a 1031 exchange, what to expect, and best practices. Because 1031 exchanges are very complex and come with a number of rules and regulations, this article helps you avoid common mistakes and shares best practices for a successful 1031 experience.
First, let’s start with common mistakes to avoid:
- Failing to identify a replacement property within the 45-day time frame.
- Purchasing a replacement property of lesser value than the original property.
- Failing to transfer the proceeds from the sale of the original property to a Qualified Intermediary.
- Using the proceeds from the sale for personal use instead of for the purchase of a replacement property.
- Failing to close on the replacement property within the 180-day time frame.
Things to Consider When Doing a 1031 Exchange
- Timing: It is important to ensure that you have sufficient time to identify and close on a replacement property within the 45-day and 180-day time frames, respectively.
- Asset class: Different asset classes may have different rules and regulations surrounding 1031 Exchanges. It is important to understand these differences and to work with an experienced 1031 Exchange attorney to ensure compliance.
- Property value: The replacement property must be of equal or greater value than the original property. It is important to consider this when selecting a replacement property.
Potential Restraints When Identifying Replacement Property(ies)
In a 1031 Exchange, there are certain restrictions on the identification of replacement property(ies). The taxpayer can only identify up to three potential replacement properties, regardless of the fair market value of each property. Alternatively, the taxpayer can identify an unlimited number of properties as long as the aggregate fair market value of the properties does not exceed 200% of the fair market value of the relinquished property.
How 1031 Exchanges differ for different Asset Classes?
1031 Exchanges can be applied to various asset classes, including real estate, personal property, and intangible property. However, there are some differences between the 1031 Exchange rules for each asset class.
- Real Estate: Real estate is the most common type of asset that is involved in 1031 Exchanges. The rules for 1031 Exchanges of real estate are well established and widely understood. Real estate investors who are considering a 1031 Exchange should work with a knowledgeable attorney to ensure that all of the rules and regulations are followed.
- Personal Property: Personal property, such as artwork, collectibles, or equipment, can also be involved in 1031 Exchanges. However, the rules for 1031 Exchanges of personal property are less well established and can be more complex. It is important for investors to work with a knowledgeable attorney who has experience in 1031 Exchanges of personal property.
- Intangible Property: Intangible property, such as a contract right or a leasehold interest, can also be involved in 1031 Exchanges. However, the rules for 1031 Exchanges of intangible property are even less well established and can be even more complex than the rules for personal property. It is crucial for investors to work with an attorney who has experience in 1031 Exchanges of intangible property.
How to select a 1031 Exchange Attorney?
When selecting a 1031 Exchange attorney, it is important to consider the following factors:
- Experience: Look for an attorney with a proven track record in 1031 Exchanges.
- Reputation: Look for an attorney with a positive reputation in the industry.
- Availability: Ensure that the attorney is available to assist you throughout the entire 1031 Exchange process.
- Fees: Consider the attorney’s fees and ensure that they are reasonable and transparent.
Most Popular 1031 Real Estate Attorneys in the U.S.
- Patrick J. Ford
- Brian J. Stark
- Jared Fluckiger
- Timothy M. Kenny
- Jonathan Klein
- Richard L. Stacey
- Patrick N. George
- J. Don Overton
- Hans G. Huessy
- Robert J. Harris
Best 1031 Exchange Companies of 2023
- Best Overall: IPX1031
- Best Value: First American exchange
- Best for Complex exchanges: Exeter 1031 Exchange Services
- Best for Tax and Business Planning: Strategic Property Exchanges, LLC
- Best for Comprehensive Banking Services: Wells Fargo
- Best for Simple Fee Structure: 1031x
Most Popular 1031 Real Estate Firms in the U.S.
- Knuckles Komosinski & Manfro LLP, Successfully Representing Lenders and Financial Institutions throughout New York, New Jersey, and Connecticut
- Stone & Sallus, LLP, Real Estate Law Firm, ready and focused on your needs.
- Finch Tetzlaff, LLP, Assisting people in California with their 1031 Exchange needs.
- Goodkin APC, Goodkin APC helps clients in the Los Angeles area with their California 1031 Exchange needs.
- Bordy Law , a reputable 1031 Exchange firm representing clients in the Los Angeles, California area.
- Bazanos Law P.C., serving clients in the Chicago, Illinois area, a reputable legal practice for 1031 Exchange issues.
- Drost, Gilbert, Andrew & Apicella, LLC has experience helping clients with their 1031 Exchange needs in Chicago, Illinois.
- Thurman & Phillips, P.C., a local 1031 Exchange firm with years of experience helping clients in the San Antonio, Texas area.
- MAG Law, PLLC, 1031 Exchange representation in the Dallas, Texas area.
- Rossi, Hamerslough, Reischl & Chuck, an established California law firm.
- Slinde Nelson has experience helping clients with their 1031 Exchange needs in Seattle, Washington.
- Karr Tuttle Campbell
- Fox Rothschild LLP
- Vedder Price
- Coughlin & Gerhart, LLP
