GMAC Real Estate 1031 Exchange Options for Second Homes
GMAC Real Estate

Articles & Resources

Specialty Real Estate

Real Estate Calculators

Room Planner

1031 Exchange Options for Second Homes

Takeaways

  • There are four basic types of 1031 exchange.
  • A delayed exchange doesn't change the 180-day replacement deadline on the trade.
  • Only get into a reverse exchange if circumstances demand that option.

Did you know?

  • Before the 1031 exchange a straight swap of titles was the only real property "trade" option.
Four second home exchange possibilities. If you are considering a 1031 exchange it’s helpful to understand the four basic types of exchange that are possible. At one time all exchanges were pretty much a simultaneous swap between two property owners interested in the other’s real estate. The 1031 exchange is also known as a “Starker” exchange named for the first taxpayers to get the now popular, and more flexible, form of exchange approved by federal court. With a 1031 exchange the swap is handled by an intermediary and property relinquished and the property acquired may not have any relationship aside from the fact the person making a 1031 exchange is involved in both transactions.

Straight Swap

This exchange harkens back to the days before the 1031 exchange. Only two parties participate in a straight swap, and like the name implies this is a direct trade of one piece of real estate for another. The exchange happens simultaneously. Let’s say you and your neighbor decide you like each other’s home. In a straight swap you would exchange your property for his, and no cash would change hands.

Simultaneous Exchange

In this exchange the title to the relinquished property is directly transferred to the buyer. The intermediary collects the cash for the sale from the buyer. The intermediary pays cash to the seller of the replacement property and the seller directly transfers the replacement real estate title to the taxpayer. This method ensures the taxpayer doesn’t receive any cash during the transaction because that money would be taxable.

Delayed Exchange

In a delayed exchange the relinquished and replacement real estate don’t close on the same date, but the replacement closing does occur within the 180 day time limit. This applies when the sale of the relinquished property must be completed before the taxpayer knows what property will be bought in the exchange.

Reverse Exchange

The reverse exchange is the most difficult and risky type of exchange. There are a number of procedures to follow, and if all the requirements aren’t met the IRS may have something to say about your exchange. The standard rule for a 1031 exchange is the replacement property can’t be bought until the relinquished property has been sold. A reverse exchange switches the order of the two steps. Sometimes this can become unavoidable in the world of real estate deals, and when it does you must do a reverse exchange.

Search for Second Homes for Sale

To search for a selection of second homes for sale, please visit lifestylehomesearch.com, or visit the website of a GMAC Real Estate Office that serves the area where you'd like to buy a second home. To learn more about buying Second Homes or Vacation Homes, explore the rest of this section, or contact a GMAC Real Estate Agent.