Understanding 1031

Tax deferral through 1031 Exchanges offers a means to preserve the wealth that you have worked so hard to accumulate and to grow your assets by reinvesting the tax savings.

Skilled Guidance Through 1031

In a typical Forward Delayed Exchange, the most common type of exchange, the taxpayer sells business or investment property and acquires Replacement Property of equal or greater value within 180 days. The use of a Qualified Intermediary, such as Liberty 1031 Exchange Services (Liberty 1031), is a safe harbor requirement to facilitate a valid tax-deferred exchange.

This Qualified Intermediary must possess intimate knowledge and a thorough understanding of 1031 regulations. At Liberty 1031 we focus solely on facilitating exchanges of real property, with unparalleled quality, expertise, and pricing.

Before you begin the exchange process, be sure to consult with your tax or financial advisor to ensure that a 1031 exchange is right for you. Then simply contact a Liberty 1031 Exchange Coordinator at our toll-free number 866.903.1031. Your Exchange Coordinator will lead you through the process, answering your questions and providing guidance along the way.

Step One: Sale of the Relinquished Property
Before the sale of the first property, the Exchanger must complete the documentation prepared by Liberty 1031. At closing, the proceeds are delivered directly to Liberty 1031, as the Qualified Intermediary

Step Two: Identification of the Replacement Property
The Exchanger must identify the property to be purchased (generally called the “Replacement Property”) within 45 days following the sale of the Relinquished Property. The taxpayer may generally identify three properties as a potential Replacement Property, or more under alternate rules of identification.

Step Three: Purchase of the Replacement Property
The Exchanger must obtain the Replacement Property within 180 days following the sale of the Relinquished Property, which must be identified property, subject to the rules listed above. At closing, the proceeds are paid directly by Liberty 1031, as the Qualified Intermediary to the settlement agent, and the Exchanger receives the Deed to the Replacement Property.

There are other types of exchanges, such as reverse exchanges, forward delayed exchanges, and construction exchanges. Liberty 1031 provides unparalleled expertise for such exchanges and your Exchange Coordinator can discuss the specifics of your situation with you.

Key Rules of a Successful Exchange

For a successful exchange, strict adherence to Section 1031 is imperative. As an investor, it is important that you understand the following rules. Your Liberty 1031 Exchange Coordinator can help answer any questions you may have.

Investment Intent
Both the property sold (Relinquished Property) and the property purchased (Replacement Property) must be held for investment or productive use in a trade or business. None of the properties exchanged can be your personal residence.

Time Frames
Replacement Property(ies) must be identified within 45 days of the sale of the Relinquished Property and must be purchased within 180 days of the sale of the Relinquished Property.

You can identify up to three Replacement Properties of any value during the Identification Period, or more, subject to certain conditions.

The Replacement Property must be “Like-Kind” to the Relinquished Property. Any type of real property is Like-Kind to other real property as long as it is used for investment purposes. For example, a shopping center is like-kind to an investment condominium and a warehouse is like-kind to raw land.

Common Ownership
The party selling the Relinquished Property must be the same party purchasing the Replacement Property or a disregarded entity with respect to that party.

Property Value
You must purchase a property of equal or greater value to the property sold or pay tax on the difference.

Exchange Values
You must use all of the cash proceeds from the sale of your Relinquished Property toward the purchase of Replacement Property or pay tax on the difference. If you offer seller financing on your Relinquished Property you may be subject to tax as the principal is repaid.

Qualified Intermediary
To qualify for safe harbor tax deferral, sale proceeds must be held by a Qualified Intermediary between the sale of the Relinquished Property and the purchase of the Replacement Property.

About Stephen A. Wayner, Esq., CES

Stephen Wayner is an attorney, Certified Exchange Specialist (CES), and Managing Director of Liberty 1031. Mr. Wayner is recognized as a leading authority on the subject of 1031 exchange transactions. He is a current board member of the Federation of Exchange Accommodators (FEA) and is the author of numerous books and articles on 1031 Exchanges and real estate investing. Mr. Wayner has been cited as an expert on 1031 Exchanges in publications including USA Today, NewYork Times, Business Week, and The Wall Street Journal among many others.

Explore These Additional 1031 Exchange Topics

Types of Exchanges

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Sample Savings

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Understanding 1031

Learn the key rules for successful 1031 real estate exchanges. Read more.

Benefits of a 1031 Exchange

Review the numerous advantages 1031 exchanges have to offer. Read more.

What to Expect In The 1031 Process

Learn what happens after you begin the 1031 Exchange process. Read more.

The 1031 Exchange Timeline

Put exchange timeframes into perspective with this helpful visual. Read more.

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