Exchange Rules

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Exchange Rules

Exchange rules require a property investors to identify potential replacement commercial properties within 45 days of the close of escrow and acquire the replacement commercial property (or commercial properties ) within 180 days of close of the relinquished commercial property. Furthermore, when choosing a replacement exchange commercial property for the exchange, the property investor must follow one of the following exchange rules:

  • The Three-Commercial Property Rule - Any three commercial properties regardless of their market values may be identified by the exchanger as potential replacement commercial properties for the like kind exchange, however no more than 3 commercial properties may qualify.

  • The Two Hundred Percent Rule dictates that if three or more commercial properties are identified, the aggregate market value of all commercial properties may not exceed 200% of the value of the commercial property, which was sold.

  • The Ninety-five Percent Exception dictates that in the event the other rules do not apply, if the replacement commercial properties acquired represent at least 95% of the aggregate value of commercial properties identified, the exchange will still qualify.

    In their exchange, many property investors benefit from buying 1031 property as TIC because it completes their exchange and can be closed in a timely manner due to pre-arranged financing.

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