The Different Types of 1031 Exchanges Explained

The Different Types of 1031 Exchanges Explained
Written By
Carl E. Sera, CMT
Published On
March 8, 2023

Are you considering a 1031 exchange but need help determining where to go? Here are the different types of 1031 exchanges explained.

Two-Party Simultaneous Exchange

A simultaneous exchange occurs when a replacement property and a relinquished property close on the same day. There are three ways for a simultaneous deal to occur:

  • Completing a two-party trade, when two parties “swap” or exchange deeds
  • An accommodating party facilitates the transaction for the exchanger in a simultaneous manner, resulting in a three-party exchange
  • Using a qualified intermediary to handle the exchange process

Delayed 1031 Exchange

Another type of 1031 exchange is a delayed exchange, which is the most common. Exchangers must identify a like-kind replacement property within 45 days, then close the property within 180 days.

A delayed exchange occurs when an exchanger relinquishes the original property before acquiring a replacement property. The two timelines have a non-negotiable relationship with the Internal Revenue Service.

Reverse Exchange

A reverse exchange is when a client acquires the replacement property through an exchange accommodation titleholder before exchanging the previously owned property. In short, it means to buy first and then exchange later. They aren’t the most common because these exchanges require cash, as banks generally won’t offer loans for reverse exchanges.

There are two differences: 45 days to identify the forfeited property and 180 days to complete the sale and close the reverse 1031 exchange via purchasing a replacement. Taxpayers must choose which investment properties suit the exchange, as failure to close a forfeited property within the 180-day window will result in forfeiture of the exchange.

Construction or Improvement Exchange

When choosing the construction or improvement 1031 exchange, exchangers can improve on a target using their generated equity from the exchange. They can either refurbish, make capital improvements to existing properties, or build from the ground up. From there, these exchanges can considerably enhance the value of an acquired property.

There are three requirements if investors want to defer all gain and use it as part of the construction or improvement. Firstly, the entire exchange equity must be used on completed improvements or as a down payment by the 180th day. Additionally, the taxpayer must receive “like-kind” property that becomes identified by the 45th day. Lastly, the replacement property must have equal or greater value when deeded back to the taxpayer, along with improvements made before the taxpayer takes the title back.

When looking for a 1031 exchange, our experts at Sera Capital can help clients manage money with proper investment education, advice, and management. We focus on individuals, couples, and industry professionals learning about investments through books, videos, blogs, newsletters, and guides to overcoming investment obstacles.

Our 1031 Delaware Statutory Trust specialists developed a process that sticks to our fiduciary roots and helps clients understand the best investment options rather than steer clients towards deals with high commissions. Contact us today if you would like to know more!

Carl E. Sera, CMT

Carl E. Sera, CMT

Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 14 years of experience in the financial services industry with a focus on investment management.

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