I031 Exchange Do's and Don’ts

Do: Remember these three basic rules:

• Money and proceeds received from the sale of the relinquished property, which are earmarked for deferral, must be used to acquire the replacement property.
• The replacement property’s purchase price must be equal to or greater than the relinquished property’s net sales price for full deferral.
• The relinquished and replacement property must be "like-kind."

Don’t: Sell and invest in property that is not "like-kind" or does not qualify.  These include – a personal residence, land under development, construction or fix/flops for resale, property purchased for resale, inventory property, bonds, notes, etc.

Do:  Plan in advance for the exchange. Talk to your accountant, attorney, broker, lender and Qualified Intermediary.

Don’t: Miss your identification and exchange deadlines. The exchange will be disqualified if replacement property is not identified within 45 days and/or the replacement property is not acquired within 180 days.

Do: Try to sell before you purchase. If an ideal replacement property is found before the relinquished property is sold, a reverse exchange (buying before selling) may be necessary. Reverse exchanges are considered a more aggressive exchange variation since another entity must hold title to either the relinquished or replacement property for up to 180 days awaiting the completion of the exchange transaction.

Don’t: Alter the manner of holding title (i.e. dissolve partnerships) during the exchange. A change in the legal relationship with the property may jeopardize the exchange.