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:

  1. The investor enters into an agreement with a qualified intermediary who facilitates a property exchange.
  2. The investor sells the relinquished property to a third-party buyer.
  3. Sale proceeds are transferred to the qualified intermediary.
  4. 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).
  5. 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.