Video: When Does a 1031 Exchange Start?

When does a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange officially start? Some Exchangers believe it starts when the sale proceeds reach the Qualified Intermediary, but the IRS takes a different position. The exchange begins when the benefits and burdens of ownership transfer from the Seller to the Buyer.

In this video, we explain how this works using a real-world example. If a closing happens on a Friday at 5 PM and a fire breaks out the next day, whose insurance company would be responsible? The answer is the Buyer's insurance, because the transfer of ownership has already occurred. This is the point at which the Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange starts and when the 180-day exchange period begins.

Understanding this timing is crucial for exchangers to meet IRS deadlines and stay compliant. Watch now to learn more.