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What Can You Not Exchange?
By Priya Jestin, Staff Writer
A section 1031 tax deferral allows you to sell a property, and reinvest the proceeds in a new property. This helps you defer all capital gain taxes. But to benefit from a 1031 exchange, you must know what qualifies for a 1031 exchange, and how it works. For example, did you know that not all real estate qualifies for the exchange?
Business property and investment property are the only types that will qualify for the tax deferral. The fact that the property sold and received must be of “like-kind” is often mistaken to mean the exact types of properties. What is not known is that the like kind provision for real property is quite broad, and includes land, rental, and business property. A 1031 exchange may actually be mixed as to type and still be like kind. For example, you may exchange land for a duplex, or a commercial building for a retail store.
So while this bit is easily done, what is not is finding a new investment property within the 45-day limit. This is one rule that is strictly enforced and you are not given any extensions whatsoever. So it is essential that you find yourself a replacement within the stipulated period.
Your problems don’t end with finding a replacement property though. In some cases you may have to get yourself some extra capital to complete the exchange. How do you manage that? You can get a loan called a bridge loan to help you finance your property for a short period of time. You can get a bridge loan for terms of 12-36 months.
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