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1031 Do's and Don'ts
DO advanced planning for the exchange. Talk to your accountant,
attorney, broker, financial advisor, lender, and Qualified Intermediary.
DO NOT miss your identification and exchange deadlines. Failure
to identify within the 45-day identification period or failure to acquire replacement
property within the 180-day exchange period will disqualify the entire exchange.
Reputable Intermediaries will not act on back-dated or late identifications.
DO keep in mind these three basic rules to qualify for complete
tax deferral:
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Receive only "like-kind" replacement property.
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Use all proceeds from the relinquished property for purchasing the replacement property.
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Make sure the debt on the replacement property is equal to or greater than the debt
on the relinquished property. (Exception: a reduction in the debt can be offset
with additional cash; however a reduction in equity cannot be offset by increasing
cash.)
DO NOT try to do a 1031 exchange yourself using your CPA or attorney
to hold title or funds. IRS regulation requires a Qualified Intermediary to properly
complete an exchange. If you do not have a Qualified Intermediary and need a referral,
call us for the name of a QI who operates in your area.
DO attempt to sell before you purchase. Occasionally exchanges
find the ideal replacement property before a buyer is found for the relinquished
property. If this situation occurs, a "reverse" exchange (buying before
selling) may be possible. Exchangers should be aware that reverse exchanges are
considered a more aggressive exchange variation because no clear IRS guidelines
exist.
DO NOT dissolve partnerships or change the manner of holding title
during the exchange. A change in the exchanger's legal relationship with the property
may jeopardize the exchange.
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