1031 Exchange Rules
1031 Exchange Rules
When choosing a replacement 1031 exchange
commercial real estate for the 1031 exchange, the
real estate investor must follow one of the following 1031 exchange rules:
The Three-Commercial Real Estate Rule - No more than three commercial real estate regardless of their market values, may be chosen as potential replacement commercial real estate within 45 days of the close of escrow on the relinquished commercial real estate. Said commercial real estate must be acquired within 180 days of the close of escrow on the relinquished commercial real estate.
The Two Hundred Percent Rule dictates that if three or more commercial real estate are identified, the aggregate market value of all commercial real estate may not exceed 200% of the value of the commercial real estate, which was sold.
The Ninety-five Percent Exception dictates that in the event the other rules do not apply, if the replacement commercial real estate acquired represent at least 95% of the aggregate value of commercial real estate identified, the exchange will still qualify.
In their 1031 exchange, many real estate investors benefit from buying 1031 real estate as tenancy in common because it completes their exchange and can be closed in a timely manner due to pre-arranged financing.