What do you know about a 1031 exchange?

If you have a property with a lot of equity and are ready to sell you need to consider how much you will pay in capital gains tax.  On the other hand of you buy another investment property of equal or greater value you can consider a 1031 exchange.  With a better understanding of Section 1031 of the Internal Revenue Code, you can hang on to wealth and defer capital-gains taxes by reinvesting proceeds from the sale of a business or investment property. This quiz, developed with the help of experts at Miami-based Bayview Financial Exchange Services, will help you get started. I will post the answers next time.

 1. In order for properties to qualify for a "like-kind" exchange, they must be:

1. Located within the same state
2. The same category of real estate, such as commercial or residential
3. Any type of real estate, as long as it's used as an investment or for business
4. Any type of real estate, with the exception of raw land

 2. To defer capital gains taxes, the replacement property you choose must:

1. Be of equal or greater value than the property you sold
2. Be worth less than the property you sold
3. Be worth no greater than 5 percent more than the property you sold
4. Be of any value; no reinvestment requirement exists to defer taxes

3. How many days from the closing date of your property's sale do you have to identify a replacement property?

1. 30 days
2. 45 days
3. 180 days
4. 365 days

4. How many days from the closing date of your property's sale do you have to actually purchase a replacement property?

1. 45 days
2. 180 days
3. 250 days
4. 365 days

 5. Which of the following purchases would qualify for a 1031 exchange?

1. A $100,000 savings bond
2. 20 percent interest in a business partnership that owns real estate
3. 300 shares of IBM stock
4. 50 percent undivided interest as a tenant-in-common in real estate

6. Which of the following purchases would not qualify as a like-kind exchange?

1. Farmland held as an investment
2. An office property used for business
3. A duplex used for your personal residence
4. A vacation home held as an investment

7. Which of the following is not a rule that must be followed when identifying a replacement property or properties?

1. The Single Property Rule
2. The Three Property Rule
3. The 95 Percent Rule
4. The 200 Percent Rule

8. What is the most common type of 1031 exchange?

1. Simultaneous Exchange
2. Forward Delayed Exchange
3. Construction Exchange
4. Reverse Exchange

 9. In a 1031 exchange, the term "boot" usually refers to:

1. The exchange of one property for another simultaneously
2. The full market value of both properties combined
3. Whatever personal items that are left behind in a property after the seller moves out
4. Any cash proceeds not spent on the purchase of a replacement property during an exchange

10. To conduct a like-kind exchange, you must use a "Qualified Intermediary" to facilitate the transaction. This person can be:

1. Your real estate lawyer
2. A real estate licensee representing either party in the exchange
3. A certified public accountant who works with either party in the exchange
4. An independent third party recognized by the IRS as facilitators of 1031 exchanges