1031 exchange

Prepare an exchange review before the sale

Confirm the property and transaction first. Section 1031 can defer recognition of gain for qualifying business or investment real property; it does not make every sale tax-free. Ask a qualified tax adviser about actual use, ownership, related parties, replacement property, debt and any cash or other nonqualifying property received. A larger purchase or higher expected rent does not establish qualification or profitability.

Arrange the process and calendar in advance. Before signing or receiving proceeds, discuss the transaction with tax and exchange professionals, including whether a qualified intermediary arrangement is appropriate. In a deferred exchange, IRS guidance generally requires written replacement-property identification within 45 days and receipt by the earlier of 180 days or the applicable return due date, including extensions. Identification rules limit the permitted choices; they do not require naming at least three properties. Have the professionals confirm the actual dates and any applicable relief rather than relying on a generic countdown.

Separate qualification from full deferral. IRS guidance describes like-kind property by its nature or character, rather than equal price or identical buildings. It distinguishes U.S. real property from property outside the U.S. Money or other nonqualifying property received can create recognized gain; that is different from saying every lower-value replacement invalidates the whole exchange. Have the adviser reconcile the actual value, liabilities, proceeds and recognized gain instead of applying one purchase-price shortcut.

Review the structure and alternatives. A simultaneous transfer, delayed replacement, purchase before sale or proposed improvement arrangement needs its own professional plan for title, funds and timing. Ownership/entity changes and a move between rental and personal use also need review before transfer. Compare a proposed exchange with an ordinary sale using actual fees, cash needed, tax projections, basis, depreciation history, losses and succession goals. A larger portfolio, new depreciation schedule or repeated exchange does not itself establish a financial benefit or erase future tax.

Keep the exchange and investment records together. Preserve identification delivery, agreements, closing statements, funds handling, adjusted basis, depreciation history, liabilities and the adviser's reporting instructions. Compare financing, condition, ongoing costs and reserves separately from tax deferral. Start with IRS like-kind exchange guidance and Publication 544. Rentari organizes rental records; it does not act as an intermediary, hold exchange funds or determine tax treatment.