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1031 Exchange Rules
Terms of 1031 exchanges to keep in mind
All 1031 exchanges must comply with at least one of the following three 1031 rules in order to qualify as such:
- 1) The Three-Commercial Property Rule - This rule allows the exchanger to identify up to a total of 3 potential replacement commercial properties within the Acquisition Period.
- 2) The Two Hundred Percent Rule holds that, if three or more commercial properties are identified as replacement commercial properties, their aggregate market value must not exceed 200% of the value of the commercial property sold.
- 3) The Ninety-Five Percent Exception is used in the event that rules 1 and 2 do not apply. In such a case, the aggregate market value of the commercial properties acquired in the exchange must comprise at least 95% of the closing value of the commercial property relinquished.
One reason why many 1031 exchangers prefer buying 1031 property as tenants in common is because of the ease of completing the transaction and closing on commercial properties. This is due, in large part, to many pre-arranged financing deals available.
