- Eligible Properties: The properties involved in the exchange must be held for business or investment purposes. Personal-use properties, such as a primary residence or vacation home, are not eligible for a 1031 exchange.
- Like-Kind Property: The property you acquire must be of “like-kind” to the property you are selling. This means that the properties must be similar in nature or character. For example, a commercial property can be exchanged for another commercial property, but not for a residential property.
- Qualified Intermediary (QI): A QI is a third-party intermediary who facilitates the exchange by holding the sale proceeds and using them to acquire the replacement property. It is important to use a QI because if you receive the sale proceeds, the exchange will not qualify for tax deferral.
- 45-Day Identification Period: Within 45 days of selling your property, you must identify potential replacement properties in writing to the QI. You can identify up to three properties regardless of their fair market value. Alternatively, you can identify any number of properties as long as their combined value does not exceed 200% of the value of the property sold.
- 180-Day Exchange Period: You must acquire the replacement property within 180 days of selling your property or by the due date of your tax return, whichever comes first.
