What are the Limitations of a 1031 Exchange?

What Is a 1031 Exchange? 

A 1031 exchange Delaware Statutory Trust or 1031 exchange DST is a way to defer or postpone any capital gains tax from the sale of investment or business real estate property.  This is a tax advantage that delays the tax.  Business owners and investors use the 1031 real estate exchange to make the most of their real estate’s heightened value and use that money for another real estate purchase. 

There is no limit to how many properties you can do with this exchange.  However, it is not a catch-all or a golden ticket for every situation.  Certain requirements and limitations must be met before proceeding with a DST 1031 exchange. 

The Rules and Limitations:

An exchange must be made with similar or “like-kind” properties.  This means the properties must be for trade, investment, or business purposes.  Because of this rule, current personal homes do not qualify; however former residential homes may meet the criteria under specific conditions.  Also, vacation property use is limited by the IRS. 

Business owners must use professional and qualified intermediaries called exchange facilitators.  These people understand the rules for a 1031 exchange DST and will complete it for you. 

There is a 45-day time frame in which you must submit the property you wish to exchange, and the replacement property must be acquired within 180 days.  For some, it may be difficult to find a “like-kind” property within this specified period. 

A 1031 real estate exchange may be done for a property worth less than what you’re selling, but you must pay capital gains taxes on the price difference. 

Maintaining your wealth for future generations can be complicated. If you’re in San Antonio and have questions about 1031 exchanges, reach out to the professionals at WhiteStone Wealth Management Services.