It is neither easy nor always possible to find a replacement NNN property very quickly to exchange with the relinquished NNN property. That is why the Delayed 1031 Exchange has become more popular(1031 exchange of NNN property). The exchanger gets an entire 180 days to complete the 1031 Exchange. However, it is mandatory to identify the replacement property within 45 days of the transfer of the relinquished property. Both the relinquished and replacement property must be held for investment or used in a trade, business. The IRS uses the term “like-kind” to describe the type of real property that qualify for 1031 tax deferral. Virtually any real property held for investment can be exchanged for any other like-kind real property held for investment.
The other broad forms of Exchanges are below:
- Simultaneous Exchange: When the purchasing of the replacement property and selling of the surrendered property is occurs simultaneously;
- Personal Property Exchange: When a property for personal use is 1031 exchanged by categorization into non-depreciable and depreciable property;
- Improvement exchange: When the proceeds of the surrendered property are utilized by the exchanger to improve and enhance the condition of the replacement property.
- Reverse exchange: When the exchanger purchases the replacement property prior to the disposition of the original, relinquished, property.
The Delayed 1031 Exchange as well as all other types of 1031 Exchanges, must conform to selecting properties per one or more of the following 3 rules:
- Three-property rule: identify three properties of any market value;
- 200% rule: identify multiple properties such that their combined market value is less than the 200% of the value of the relinquished property;
- 95% rule: identify one or multiple properties whose combined value is at least 95% of the relinquished property
For a successful Delayed 1031exchange of NNN property, consider:
- The IRS requires the taxpayer to identify the replacement property with notice to the IRS, within 45 days from closing of a relinquished property. The 45-day identification period begins on the closing date.
- Close on the replacement property by the earliest of either: 180 calendar days after closing on the sale of the relinquished property or the due date for filing the tax return for the year in which the relinquished property was sold (unless an automatic tax-filing extension has been obtained.
- The Delayed 1031 Exchange requires investors to work with an IRS-approved third-party principal called a qualified intermediary. The qualified intermediary documents the exchange by preparing the necessary paperwork and holds the exchange proceeds.
- To defer all capital gain taxes, a taxpayer must buy like-kind property(of equal or greater value (net of closing costs), reinvesting all net proceeds from the sale of the relinquished property.
- The capital gain taxes on a Delayed 1031 exchange are deferred into the future and are only recognized when a taxpayer actually sells the property for cash instead of performing a 1031 exchange(Types of Delayed Exchange). Investors can continue to exchange properties as often and for as long as they wish.
Call or email your experts at the Triple Net Investment Group for the best advise on your NNN property Delayed 1031 Exchange!
