I’m going to talk to you about 1031 exchange rules 2020 and Identification requirements. When a 1031 exchange does is of roles the game from the sale of your old investment property over to your new investment property.
Section 1031 is divided into two parts. One part deals with what the IRS caused personal property.
Things that move planes, boats, construction equipment, over the road, trucks and trailers office, furniture that type of thing.
The rules for personal property movable things are completely different.
Almost all of you are interested in varies pretty much very narrowly in the real estate rules. Which is the other half of section 1031?
Now to do that successfully there are critical rules that you have to follow:
Old property selling & new property buying
The first of those rules is that both the old property you’re selling and the new property you’re buying has to be held for investment.
Now that does not mean that if you’re selling a purple duplex. You have to buy purple duplex.
It means that if you’re selling a purple duplex. You have to buy some other type of investment property.
You could buy an office building or an apartment building or bare land. Anything that you’re gonna hold for investment.
It could be anything as long as both the old property and the new property are held for investment.
What doesn’t qualify are obviously you personal residences
Where the kids and the dogs live. That does not count for a 1031 exchange. Totally different rules govern that.
What about Vacation Homes or Second Homes
So then the question often comes up. What about the in-between properties like vacation homes and second homes.
The IRS rules for vacation homes and second homes are very particular and rather than go into those in detail if that fits you.
If you have a vacation or a second home that you want to sell and you’re questioning whether you can do an exchange on it.
So in summary rule says that both the old property you’re selling and the new property you’re buying has to be held for investment.
As long as the old property you’re selling and the new property you’re buying are held for investment. You will roll the gaming from the old property to the new.
1031 Exchange Identification Requirements
There are three ways to identify replacement property in a 1031 exchange. let’s review them so you can choose which is right for you.
Three Property Rule
Most people use the three property rules using this rule you can identify up to three properties at any values and may acquire one, two or all three.
If you want to identify more than three properties you can use the 200% rule. With this rule, you can identify any number of properties as long as the total value is not more than 200% of the value of the property that you’re selling.
You can still have a valid exchange. Even if you don’t comply with the three property rule or the 200% rule.
The challenge of the 95% rule is that you must acquire at least 95% of what you’ve identified essentially everything.
The identification must be in writing and signed and you must clearly describe the property.
This generally means that you identify either the address of the property its parcel number or its legal description.
You must send the identification notice on or before the 45th day.