The 3 Fundamental Rules of 1031 Replacement Properties

Wide open gate leading to a modern residential propertyIn some cases, rather than punish you, some regulations are meant to increase your profits from your property deals. One of the federal codes that boost your profits in real estate transactions is 1031.

Code 1031 allows property investors to defer payment of the taxes from property deals. Among the things you should identify in your transaction are 1031 properties in Nevada for replacement. Experts from 1031 Exchange Place list the basic rules that govern 1031 replacement properties.

The Three-Property Rule

This basic rule allows a 1031 investor to identify up to three properties regardless of their fair market value. Most experts will advise you to trade in a property of greater or equal value compared to your relinquished one. This is the best way to assure you of profits in a 1031 exchange.

The 200% Rule

In case an investor identifies more than three properties, then the 200% rule is applied. The aggregate value of all properties identified in this case, however, shouldn’t go beyond 200% of the fair market share of your relinquished property. In most cases, the price used in determining your property’s fair value is its listing price.

The 95% Rule

This rule is hard to adhere to practically but experts will help you comply. The law states that an investor must acquire 95% of a property’s fair market value whether it increases or decreases before the possession of the property. The property’s value in this instance is only relevant within the 180-day period in 1031 investments.

Adhering to the basic rules of 1031 properties is quite difficult for a novice. Ignoring them, however, will attract hefty penalties, which will mar your 1031 property transaction. The best choice for you is to hire a company with an expertise in 1031 tax exchange services.