1031 Exchanging Contiguous Parcels of Real Estate

 Commercial Property

Recently, a client came to us with the following 1031 exchange situation. There was a single tenant commercial building that the taxpayer was considering buying as the part of a 1031 exchange. On paper, the building consisted of about 8 condo units all owned by the same entity. But in person it was one physical building with one owner and one tenant. If the taxpayer were to trade in this property, would they be limited to trade into only 3 of the condo units or could it be all one “purchase.” 

1031 Identification Rules

Contiguous parcels of real property and condominium units are often regarded as “One” property for the purposes of the 1031 identification rules.

If the Replacement Property is one contiguous set of condo units that are all operated as one business unit and purchased from one seller at the same time, then it is one property for the purposes of using the three-property identification rule. Note, if you close on this Replacement Property within the first 45 days, then you do not have to designate or identify it in writing because you are deemed to have identified it by virtue of receiving it.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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