1031 exchange for business
Client is selling a business (Gas Station – purchased in 2008)
What will be considered as like kind exchange
can he buy Multiplex or few rental homes ?
What needs to be reinvested in new exchange – profit or total sale price
His business is in escrow so how soon he needs to invest in like kind ?
Thanks for your question. Based on our research, the type of investment your client would need to make to complete a 1031 would depend on the structure of the sale of their current asset. If they are selling their gas station as a business (perhaps they don’t know the actual property) then they would need to invest in another operating business. However, if they’re selling the gas station as real property, then they should be able to purchase just about any kind of real estate in order to satisfy their 1031. A multiplex or rental homes should be fine, so long as your client doesn’t use any of the properties as a residence.
In order to complete a 1031, your client will need to purchase one or more properties with a total purchase price equal to or greater than the sales price of the gas station. What’s more, any net sales proceeds that they get from the sale of their gas station would need to be reinvested to satisfy the conditions of a 1031 exchange.
Finally, in order to complete a 1031 your client will need to identify target properties for acquisition within 45 days and close on the purchase of new properties within 180 days. In order to complete a 1031, your client will also need to work with an approved intermediary. If they haven’t already identified a company to work with, they can refer to our list of the Best 1031 Exchange Companies. Any of those companies should be able to help your client immensely as they work through the process to make sure they don’t violate any 1031 exchange rules.
For more information on how 1031s work, please refer to our ultimate guide to Section 1031 Exchanges.
Hope this helps. Best of luck.