How Does the 45-Day Identification Period Work When Selling Multiple Properties?

If you sell three relinquished properties and do a 1031 exchange for a single replacement property, are there any changes to the 45-day identification period?

The answer all depends on your state of mind. If you are selling three properties all at once to a single buyer under a single purchase agreement, then that would likely be considered a single exchange and you would have a single identification period that would begin when you sell those properties.

However, if you’re selling three different properties to three different purchasers at three different times, it could be argued that those are three separate and distinct exchanges. That means you would have three separate linear timelines for your exchange deadlines.

Theoretically you could pour the money from all three into a single replacement property and you want to keep all of your options available.

This can be a very tricky situation so it’s especially important that you work with a qualified intermediary when doing a complex exchange like this.

Forge Ahead with Your 1031 Exchange

Forge ahead with your 1031 exchange of investment real estate today by contacting a qualified intermediary with the experience needed to facilitate your exchange. CPEC1031, LLC has over two decades of experience in the like-kind exchange industry. We have worked with clients on their exchanges of real estate all over the United States. We have the skills and know-how necessary to ensure a successful exchange with 100% tax-deferral. Reach out to our team of professionals today to talk about your next like-kind exchange of investment real estate!

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges of Vacation Homes

Vacation homes have been a hot button issue for the IRS when it comes to 1031 exchanges. They have challenged the exchange of second homes, cabins, ski chalets, and the like. Their position is this: if the taxpayer uses the property primarily for personal use, it doesn’t matter that the taxpayer wanted it to appreciate in value and was hoping it was a good investment. What matters is the taxpayer’s use of the property. In short, you can’t exchange a cabin for another cabin if both properties are used for personal use.

Moore v. Commissioner

The seminal case in this area is Moore v. Commissioner. In 2008 the IRS went out of their way to create a safe harbor because a lot of taxpayers like to own vacation condos that are put into rental pools managed by companies that bring in periodic tenants. But the taxpayer may also want to use their condo for a few weeks a year.

So the IRS decided to look at the properties you sell in a 1031 and analyze the two years prior to sale to determine if it was used too much for personal property. They test each of those years to see if the taxpayer used it more than 14 days a year or more than 10% of the time it was rented. If you stay within the confines of this safe harbor, you can still do a 1031 exchange provided it was in a rental pool and your use didn’t exceed these thresholds.

Exchanging into a Vacation Home

The same analysis also applies if you’re exchanging into a property that is going to be put into a rental pool. On the replacement side, if you’re buying a condo you want to make sure that your personal use does not exceed 14 days a year, or 10% of the time it was rented.

Here’s a tip - don’t be cute with the IRS. If you’re going to go on vacation for a month and a half, rent a different condo than the one you own. Then you can avoid this common trap when it comes to 1031 exchanges of vacation homes.

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

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Partially Deferring Gain in a 1031 Exchange

1031 exchanges are not a zero-sum game. You can have a partial deferral and a partial recognition of gain if you buy down in value.

An Example of a Partial Exchange

Let’s say that you sold a $500,000 property and your remaining adjusted basis is $200,000. Maybe you bought it for more than $200,000 but because of depreciation deductions that have whittled down your original cost basis, you now only have $200,000 in basis. When you acquire new replacement property, your old basis gets transferred to the new property. The original $200,000 in basis follows you to the new property and you only begin to defer gain to the extent that you buy up in value over and above that transferred basis. Let’s say your replacement property was purchased for $450,000. The first $200,000 of that is a wash due to the basis you carried over from the relinquished property. You begin to defer gains on the next $250,000. But that still leaves you $50,000 short of the relinquished property so you would recognize gains on that amount. It’s a partial victory, despite not deferring 100% of the gains.

If you find yourself short of deferring 100% of the gains, there are options available that can help you reach that 100% threshold. For example, you could construct improvements to the replacement property within your 180 day exchange period to increase the property value as needed.

Give Section 1031 a Try

Are you thinking about selling a piece of investment real estate but are hesitating because of the potential capital gains tax bill? If so, then a 1031 exchange might be a good option for you! Section 1031 allows any US taxpayer to defer their capital gains on the sale of qualifying real estate as long as they put the sales proceeds into a bigger and better replacement property. This benefits the taxpayer in multiple ways: by allowing you to defer your taxes and by keeping your money working for you and compounding in a continued investment property.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

The 1031 Strike Zone - Does My Property Qualify?

Whether or not your property qualifies for a 1031 exchange is determined by whether or not it fits in the IRS’s strike zone for a 1031. Inside this strike zone are properties held for investment or business purposes. We have talked at length about the various types of property that fall within this strike zone, but what exists outside the strike zone for 1031 exchanges?

Outside the Strike Zone

Outside the 1031 strike zone are 2 major categories:

1. Properties used primarily for personal use like a lake cabin or a ski chalet, or the car you use to drive to the grocery store. You are not holding these for investment or business purposes. They are for personal use.

2. Inventory or property you hold primarily for resale. Let’s say a taxpayer buys a big tract of land and chops it up into parcels that they then sell to the public to build homes on. Is that taxpayer holding that property for investment or business purposes or are they holding it for inventory for sale to the public? A surly IRS agent would say the latter and deny a 1031 exchange.

So condo converters, developers, and even house rehabbers or flippers don’t fit neatly into the 1031 strike zone. If you fall into one of these categories and are considering a 1031 exchange, contact a qualified intermediary to discuss your options.

• Start Your Exchange: If you have questions about whether or not your Minnesota property qualifies for a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Drop & Swap in a 1031 Exchange?

1031 exchanges sound simple on the surface, but can actually be quite intricate in many cases. In this article, we are going to discuss a strategy for tenants-in-common carrying out a 1031 exchange - the drop and swap.

Real Estate with Multiple Owners

Often, people will own real estate collectively in a trust, partnership, or other business entity, and maybe one or some of those owners in the entity really want to do a 1031 exchange on the sale of the entity’s property.

Well before the closing - maybe even before the listing agreement is signed - those owners of the entity have a planning opportunity in which they can reconfigure the ownership of the property to make it most advantageous and flexible for those owners to do separate 1031 exchanges.

The Drop & Swap

A drop and swap can occur where the entity transfers out some or all of the property to the various co-owners as tenants-in-common. So rather than having the business entity own the property, the owners of the entity become the tenant-in-common co-owners of the real estate.

Remember that section 1031 states that you must have held the property for investment or business purposes. So these individual owners are going to want to satisfy the holding requirement and receive ownership well prior to any sale or disposition of the relinquished property.

Plan Early

If you do the drop and swap at the eleventh hour right before the sale is to occur the IRS may not respect that transfer to the various co-owners. Furthermore, they may say that those co-owners have not satisfied the holding requirement because they only held it for a brief period of time before immediately selling it. And if they did hold it for such a short period of time, their argument would be that they held it primarily for resale and not for investment or business purposes.

• Start Your 1031 Exchange: If you have questions about drop and swaps in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved