Time restrictions. You must officially record identifying a new property within 45 days of selling your old one. There are different ways to identify replacement properties: • Find three properties, not worrying about their fair market value. • Identify as many properties as you can, as long as their aggregate fair market value is less than 200% that of the sold property on the date of the transfer. • If the above two rules are exceeded, you can buy 95% of the aggregate fair market value of the identified properties. • You also have to close on the new property within 180 days of the previous property’s sale. A qualified intermediary. Not only can you not be directly responsible for the transactions or money, your intermediary must be someone with whom you haven’t worked for at least two years. Let’s use this example from a March 2019 interview that “The Motley Fool” conducted with Thomas Castelli: Let’s say you have a property you bought for $100,000. Ten years pass, and now it’s worth $150,000. You have a $50,000 capital gain. Break it up in between capital gain and depreciation recapture however you want. You’re still going to have to pay tax on that $50,000. So, when you pay tax on that $50,000 of capital gains, you’re going to have less money you can reinvest. What a 1031 allows you to do is invest that entire amount so you’re not paying the taxes today, and you can purchase a larger property. You could continually purchase larger and larger properties and continue to use the 1031 exchange pretty much forever. And if you really wanted to — I’m just going to be honest, as it’s easier said than done — you can eventually leave the property to your 12
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