Two Basic Ownership Structures for 1031 Exchanges
With a 1031 Exchange, investors can choose between whole-property purchases and fractionally-owned purchases. One advantage of fractional ownership interest in commercial assets that can be an attractive alternative to purchasing a wholly-owned property is the ability to close within the short 180-day time limit and passive ownership (investor is not actively operating the property).
1031 Exchanges Have a 5-Step Process:
- The investor enters into an agreement with a qualified intermediary who facilitates a property exchange.
- The investor sells the relinquished property to a third-party buyer.
- Sale proceeds are transferred to the qualified intermediary.
- The qualified intermediary uses the proceeds to purchase the replacement property on behalf of the investor within the time limits defined in the Internal Revenue code (180 days).
- Upon closing, the investor owns the replacement property or a fractional interest in a trust that owns the replacement property.
Failure to meet the IRS’ stated deadlines will make the property sale a taxable event. Please consult your tax advisor.