1. Waiting too long.

With only a 45 day period to identify property, you don’t want to wait until the last week.  Start early, look for a property that you really want, and don’t be pressured to close. (already in your 45 day ID period?  Better start now link to 45 day ID page)

2. Rushing.

Delayed exchanges are allowed as long as the proceeds from the initial sale are held by a Qualified Intermediary link to QI page.

3. Receiving funds from sale instead of transferring them to a Qualified Intermediary.

Receiving funds from the sale of your property automatically disqualifies the 1031 exchange. Be sure to stipulate a transfer of sale funds to a Qualified Intermediary link to QI page in the purchase agreement.

4. Improperly executing a 1031 exchange.

Choose a Qualified Intermediary with experience and avoid significant tax consequences.  Be sure to use an account that can be released only with your intermediary’s signature, and yours.

5. Limiting scope of search

The perfect “like-kind” property might be something very different from your previous one.  Speak with an expert link to Request Form who knows where the boundaries are.

6. Ruling out options prematurely

You can identify and designate up to three separate properties, but keep in mind that you have to close on at least one of them.

7. Not Considering Mortgages

Decreased liability will be treated as income – just like cash.  Consider debt on the sold property, as well as any acquired on the new one.

8. Not Considering Depreciation

Investors must deduct depreciation from the basis of the property before calculating gain.

9. A 1031 exchange does not eliminate taxes

Deferred taxes on capital gain don’t just go away.  Be ready to pay those taxes when the time comes.

10.  Choosing not to Exchange

Choosing not to exchange can be a tax nightmare.  The federal capital gains tax is 20%.  Add state tax (9.9% – 13.4% in California; New York is even higher), Medicare surcharge tax (3.8%), and finally, 25% recapture of depreciation. Consider talking to an expert who knows how this section of tax code can keep your money working for you.

If you are not sure if a 1031 exchange is right for you, please contact us.
To learn more about our available 1031 exchange properties, click here.