1031 Exchanges

What is a 1031 Exchange?

Section 1031 of IRC, popularly known as a 1031 exchange or tax - deferred exchange, is an arrangement that allows investors to defer capital gains taxes on exchanging an investment property for another like - kind property. In order to ensure that investors continue their investment, the IRS has established a set of guidelines that every 1031 exchange investor needs to follow.

1031 Exchange Guidelines

  • Properties involved in 1031 exchanges must be held for use in trade, business or for investment purposes. Personal properties don’t qualify for 1031 exchanges.
  • The replacement property must be like-kind to the relinquished property. In other words, both relinquished and replacement properties must be similar in nature. They needn’t serve the same purpose or used in the same way. For example, using a 1031exchange, an investor can exchange an investment property(retail property, industrial property, etc.) for any other investment property (multi-family apartment, student housing building, etc.).
  • The participation of a Qualified Intermediary is mandatory in every 1031 exchange. A qualified Intermediary is a person responsible for handling 1031 exchange on behalf ofinvestors. Every 1031 exchange investor must involve a Qualified Intermediary for their exchange.
  • A 1031 exchange investor must identify one or more potential replacement properties within 45 days, which begins the day the relinquished property is sold. This time frameof 45 days is known as theIdentification Period.Written identification of the potential replacement property must reach 1031 Corp. on or before the midnight of the 45th.
  • Every 1031 exchange investor gets 180 days in total for completing each exchange.
  • There is no provision for extension of deadlines in Section 1031. Missing any of the deadlines will immediately disqualify an exchange.

No limitation on the number of replacement properties...

Though the market value of the replacement property must be equal to or greater than that of the relinquished property, the IRS has imposed no limitation on the number of properties that can be identified or acquired as 1031 exchange replacement property. 1031 exchange investors can identify any number of replacement properties using any of the following rules-
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Three-Property Rule

As per this rule, a 1031 exchange investor can identify up to three replacement properties irrespective of their values. Not all the identified properties need to be acquired and it entirely depends upon the investor whether they want to acquire one, two or all three properties.
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The 200% Rule

Using this rule, a 1031 exchange investor can identify any number of replacement properties as long as the market value of all the identified properties doesn’t exceed 200% of the market value of the relinquished property.
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The 95% Rule

Barely any investor uses this rule because of its complexity. As per this rule, a 1031 exchange investor can identify any number of replacement properties as long as the market value of the property acquired at the end of an exchange is at least 95% of the market value of all the identified properties.

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Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Perch Wealth and Arkadios are not affiliated through any ownership.
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Perch Financial LLC and Arkadios Capital LLC do not provide legal or tax advice. Securities offered through Arkadios Capital LLC Member FINRA/SIPC and MSRB registered. Arkadios Capital LLC is unaffiliated with any entity herein.

1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits


No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.

NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Arkadios Capital LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.

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