Texas 1031 Qualified Intermediary · Midland & Dallas
Texas 1031 Qualified Intermediary · Midland & Dallas
A 1031 exchange only defers tax if you follow the rules in Section 1031 of the Internal Revenue Code and its Treasury Regulations. These are the rules that matter most, in plain English.
Both the property you sell (the “relinquished” property) and the property you buy (the “replacement” property) must be held for investment or for productive use in a trade or business. A primary residence doesn’t qualify, and neither does property bought to flip.
Since the Tax Cuts and Jobs Act took effect in 2018, only real property qualifies. “Like-kind” refers to the nature of the property, not its grade or quality. Any U.S. real property held for investment is generally like-kind to any other: land, rentals, commercial buildings, farms and ranches, and many oil, gas and mineral interests. Property inside the U.S. and property outside the U.S. are not like-kind to each other.
If you receive the sale proceeds, or have the right to them, the exchange fails. A qualified intermediary like 1031 Ventures must be engaged before the sale closes, and proceeds go directly into a qualified escrow account. Your own attorney, CPA, real estate agent or employee who has acted for you in the past two years generally can’t serve as your QI.
You have 45 calendar days from the sale closing to identify replacement property in writing, signed, and delivered to your QI. You can identify under one of these tests:
You have to close on the replacement property within 180 calendar days of the sale, or by the due date of your tax return for that year (including extensions), if that comes first. The 45-day and 180-day periods run at the same time, and neither is extended for weekends or holidays. See the 1031 exchange timeline.
The taxpayer who sells has to be the taxpayer who buys. Single-member LLCs and revocable trusts are usually “disregarded,” so they’re treated as the owner. Partnerships and multi-member LLCs need extra planning before the sale.
To defer all of the tax:
Anything you don’t reinvest, whether cash or debt relief, is “boot” and is taxable. A partial exchange is still allowed. You just pay tax on the boot.
Exchanges with family members or entities you control are allowed but restricted. In general, both parties have to keep their properties for two years.
Report the exchange on IRS Form 8824 with your tax return for the year you sold the relinquished property.
The Code doesn’t set a minimum holding period. What matters is intent to hold for investment. Many advisors suggest holding for at least a year or two. Separate rules apply to related-party exchanges, and to property later converted to a primary residence, which must be held five years before you can use the home-sale exclusion.
Yes. You can sell one property and buy several, or sell several and buy one, as long as you meet the identification and timing rules.
Sometimes. The IRS safe harbor in Rev. Proc. 2008-16 covers dwellings that are rented at fair market rent for at least 14 days a year and used personally no more than 14 days, or 10% of the days rented if that’s more.
Questions about your situation? Call 432-934-1479 or start an exchange.
Call before your sale closes. A qualified intermediary has to be in place first.
General information only, not tax or legal advice.
Qualified intermediary for 1031 exchanges of investment real estate, land, and oil, gas & mineral interests. Exchange funds are held in a qualified escrow account at a federally insured bank.
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