Like-Kind Property

Like kind refers to the type of property being exchanged.  You can exchange any investment real estate for any other type of investment real estate – for example, vacant land can be exchanged for rental property.  In most cases your personal residence is not a like-kind investment property.  In addition, you can often exchange one property into multiple properties.  The three property rule allows for an exchange into three separate properties that seek to provide diversification to your portfolio.

Exchanging Up

To accomplish a fully deferred tax exchange the rule of thumb is…exchange even or up in value and exchange even or up in equity and debt.

Boot

To the extent that you do not exchange even or up in value and/or exchange even or up in equity and debt, you will have received non qualifying property (“boot”) in your exchange.  If boot is received, tax is computed on the amount of gain on the sale or the amount of boot received – whichever is lower.

Typical Exchange Addendum Language for Sales Contracts

“Buyer hereby acknowledged that it is the intent of the Seller to effect an § 1031 tax deferred exchange which will not delay the closing or cause additional expenses to the buyer.  The Seller’s rights under this agreement may be assigned to a Qualified Intermediary, named by seller, for the purpose of completing such an exchange.  Buyer agrees to cooperate with the Seller and the Qualified Intermediary in a manner necessary to complete the exchange. 

 

 

This is for informational purposes only, does not constitute an offer to buy or sell any investment, and does not imply any guarantees. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor.