Strategic Exchange Advisors
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www.sea1031.com
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Atlanta, GA 30326
Strategic 1031 Exchange Advisors, Atlanta, Georgia

1031 Rules

The “Like-Kind” Requirement

In order to qualify for safe harbor tax deferral, the Relinquished Property must be “like-kind” to the Replacement Property. It is this “like-kind” definition that often confuses many taxpayers and their tax advisors.

In exchange transactions involving real property, all real property is deemed to be “like-kind” with other real property. Thus, as an example, a retail shopping center is “like-kind” to an office building while raw land is “like-kind” to an apartment building. Also qualifying as “like-kind” real property:

  • Raw Land
  • Office Buildings
  • Retail Property
  • Multi-family property
  • Residential rental property
  • Leases and Lease Options of 30+ years
  • Options and Contracts
  • Oil, Gas and Mineral Rights
  • Tenants-in-Common (“TIC”) Interests
  • Boat Slips/Docks
    (note that state law will control whether these are treated as personal property or real property)

In personal property exchanges, the “like-kind” requirement is much more restrictive and therefore more onerous for the taxpayer. As an example, an aircraft is not “like-kind” to a bulldozer, and a car is not “like-kind” to a truck.

Property Identification Rules

There are three different rules that an exchanger can utilize when identifying property
in a 1031 exchange:

1. The Three Property Rule: The Exchanger may identify up to three potential Replacement Properties without regard to their value.

Or

2. The 200% Rule:The Exchanger may identify more than three properties, provided that the aggregate fair market value of these properties does not exceed 200% of the value of the Relinquished Property.

Or

3. The 95% Rule: The Exchanger may identify more than three properties, without regard to their aggregate value, provided that the Exchanger acquires 95% of the fair market value of the identified properties.