The most popular exchange is called a Delayed exchange (aka Forward exchange). In this exchange, the exchangor first closes on disposition of their old property (the relinquished property) before they acquire their new replacement property.
A Delayed Exchange Example
Here is a quick example of a common forward exchange to illustrate the definition. Imagine a property investor sells a rental income property that they own, and intends to buy another rental income property in a different part of town. If the investor closes on the sale of his old rental property before purchasing the new building, this is a delayed exchange.
In this example, the investor can utilize a 1031 exchange to re-invest his money from the old real estate into the new one, and defer taxes on the capital gains. But in order to do so, a qualified intermediary must be involved to insulate the investor from receiving any capital gain in the eyes of the IRS. The replacement property (the new rental income building) must also be acquired within 180 days after the sale of the old property. Also, the new replacement properties must be designated or identified in writing within 45 days after the date of the closing of the old property.
If you have any questions about delayed exchanges or are considering re-investing in property using a 1031 exchange nationwide, give us a call today at 346.800.2882