Frequently Asked Questions and Key Terms.
Can you enter into a 1031 exchange on a primary/homestead residence?
No, because you live in that home and it is not held for investment purposes. It can, however, become an investment property if you rent it out for a reasonable period of time and refrain from living there.
Can you do a 1031 exchange on a second home?
Only if that home is rented out and generates income. Must meet the “investment purposes”.
Can you change the ownership of the replacement property after a 1031 exchange?
Advisable not to change ownership quickly. If you change ownership of the property too quickly, the IRS may assume you did not acquire it with the intention of holding it for investment purposes – a fundamental rule for 1031 exchanges.
Can you enter into an exchange on oil, gas and minerals?
Yes! Oil, Gas and Minerals are defined as real property and as such, a tax-deferred exchange can be utilized when purchasing or selling.
Key Terms of a 1031 Exchange
Relinquished Property: Investment property you wish to “sell” or dispose of.
Replacement Property: Investment property you wish to end up with.
Qualified Intermediary: (“QI”) Person/entity who satisfies I.R.C. § 1031.
Exchange Agreement: Agreement between the selling party and the QI fulfilling the requirements of a Qualified Intermediary Safe Harbor (it is not the contract of sale for the sale of your property).