1031 Exchange Types
There are fundamentally two types of 1031 exchanges that apply to all 1031 exchanges. The forward 1031 exchange and the reverse 1031 exchange with the only difference being which property is closed first, the old or the replacement property.
Forward 1031 Exchange
In a forward 1031 exchange the relinquished or old property is closed before the acquisition of the replacement property.
Leasehold Improvement Exchange
Building on land already owned is a leasehold improvement exchange. At least six months prior to the exchange, the property to be improved is conveyed to a related party. The related party enters into a 30 year, 180 calendar day lease with an Exchange Accommodator Titleholder (EAT). The EAT makes the improvements with funds provided by the Exchangor. Then conveys the lease to the Exchangor. The related party owns the ground and continues the lease for at least two years collecting fair market ground rent from the Exchangor.
Multi Asset 1031 Exchange
Restaurants, fast food franchises, gas and convenience stores, apartments, motels are examples of mixed use exchanges. The exchange represents real property that can be exchanged.
Mixed Use 1031 Exchange
When exchanging a farm or ranch or a duplex, there is real property held for investment or productive use in business and a farmhouse, used as a primary residence. Section 121 provides a $250,000 per husband and wife to defer capital gain. The remainer of the property is exchanged under section 1031 deferring the federal and state capital gain and recaptured depreciation.
Reverse 1031 Exchange
In a reverse 1031 exchange, the replacement property is purchased before the relinquished property is sold. A 1031 reverse exchange is the type of 1031 exchange used to accomplish the build to suit, improvement and leasehold exchange.
Simultaneous 1031 Exchange
A simultaneous 1031 is when the relinquished or old property is sold at the same closing as the replacement property. Many confuse the one closing simultaneous with the same day closings at two different title companies. Given there are two separate closings, this is really a forward exchange, delayed from one to the next.
1031 Exchange Types
- Build to Suit/Construction 1031 Exchange
- Delayed/Forward 1031 Exchange
- Leasehold Improvement 1031 Exchange
- Like Kind 1031 Exchange
- Like-Kind Exchange (LKE) Program
- Mixed Asset 1031 Exchange
- Multi Asset 1031 Exchange
- Reverse 1031 Exchange
- Simultaneous 1031 Exchange
Foreign Investment in Real Property Tax Act of 1980
FIRPTA applies to nonresident aliens who are foreign individuals and corporations selling U.S. real estate.