Do you know your 1031 Exchange Basics?
Take this 1031 Exchange "True-False" Quiz and find out!
1) The purpose of a 1031 Exchange is to defer income tax in an investment property sale.
2) The number "1031" refers to a section of the United States Internal Revenue Code.
3) The property relinquished and the property acquired must be of "like kind."
4) All real property, depending on its use, can be the subject of a 1031 Exchange.
5) A real estate investor cannot exchange out of or into a personal residence.
6) Second homes and vacation homes are considered personal residences and, therefore, cannot be the subject of a 1031 Exchange.
7) The definition of "Boot" is "cash received and/or reduction of debt."
8) "Boot" received in a 1031 Exchange is taxable income.
9) There are strict time limits to qualify for a 1031 Exchange.
10) A person doing a 1031 Exchange has 45 days to designate a property or properties they plan to acquire and six months to complete the exchange.
11) An exchanger should always review their entire exchange transaction with their tax and/or legal advisor before planning an exchange.
12) The property being "sold" (given up) in a 1031 Exchange is called the "relinquished" property.
13) The property being "purchased" (acquired) in a 1031 Exchange is called the "replacement" property.
14) A 1031 Exchange is complete when all or a portion of the exchange funds are used to acquire the replacement property or properties, and all the exchange requirements are met.
15) A "replacement property" cannot be purchased with the intention to sell immediately.
16) Exchange property can be located anywhere in the United States.
17) Both the relinquished property and the replacement properties in a 1031 Exchange must be held for business or investment use.
18) An exchanger must use a "Qualified Intermediary" or Accommodator to properly handle their 1031 Exchange in order to qualify for the tax deferred exchange benefits.
19) Qualities to look for in a "Qualified Intermediary," should include account security, expertise, honesty and experience.
20) An exchanger must not have either receipt of or access to proceeds of sale from the property relinquished.
21) An investor of real property may be able to increase his or her cash flow by exchanging out of raw land and into income-producing property.
22) An investor who takes advantage of the 1031 Exchange process can end up purchasing more real estate with his or her tax-dollar savings.
23) When properly and professionally executed, a 1031 Exchange is an invaluable investment tool.
24) A 1031 Exchange is a form of "leveraging" assets in order to make more money as a real estate investor.
25) The 1031 Exchange process can be a benefit in estate planning.
Click here for the answer key.
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