1031 Exchange
Explained

Thinking about a 1031 Exchange? Below are some of the most common questions we receive from investors, along with clear, straightforward answers to help guide you through the process.

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How long do I need to own my property before I can exchange it?

There’s no fixed holding period that automatically qualifies a property for a 1031 Exchange—the IRS focuses on intent rather than time. The key requirement is that the property must be “held for investment” or for productive use in a trade or business.

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While there’s no official minimum, many tax advisors recommend holding property for at least two years to demonstrate investment intent. Others suggest twelve months or more, as this typically places the property in two separate tax years and aligns with a past Congressional proposal for a one-year minimum.

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In short: the longer you hold the property as an investment, the stronger your case for exchange eligibility.

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Can I sell my duplex and purchase bare land?

Yes. As long as both properties are held for investment or business use, they are considered like-kind under IRS guidelines. Holding land for future appreciation qualifies as an investment purpose.

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Can I buy my replacement property before selling my current one?

Yes, this is possible through a reverse exchange. In this structure, the replacement property is purchased first, and the relinquished property is sold afterward. Reverse exchanges must be carefully structured to meet IRS safe harbor rules, so it’s important to plan ahead. Asset Exchange Company can help ensure your transaction meets all necessary requirements.

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Can I move into a rental property that I purchased through a 1031 Exchange?

Yes, but timing and intent are critical. The IRS examines whether your original intent when acquiring the property was to use it as a personal residence. If it appears that was the case, the exchange could be disqualified. Generally, it’s best to hold the property as an investment for a reasonable period before converting it to personal use.

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Do I have to reinvest all of my cash or equity?

No. You can choose to reinvest only part of your proceeds, but any funds not reinvested will be taxable as what’s known as “cash boot.” To fully defer taxes, all cash and equity should be rolled into your replacement property.

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How long do I have to complete my exchange?

You have 180 days from the sale (close of escrow) of your relinquished property to complete the purchase of your replacement property. Within that period, you must identify all potential replacement properties in writing by day 45.
There are no extensions to these IRS timelines, so careful planning is essential.

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For additional questions or personalized guidance, please contact Asset Exchange Company at 877.471.1031. Our team is here to help make your 1031 Exchange smooth, compliant, and stress-free.