Key rules to consider:

  1. The properties involved in the exchange must be held for investment purposes.
  2. The properties being exchanged must be “investment properties”, which means they are held for investment or business purposes. This requirement is often described as the properties being “like-kind”, but it’s important to understand that the focus is on the investment nature of the properties, rather than their physical characteristics.
  3. All of the sales proceeds from the relinquished property (downleg) must be used to acquire the replacement property (upleg) or properties to fully defer taxes. Any amount that is not reinvested in a like-kind property, known as “boot”, will be taxable.
  4. The replacement property must be identified within 45 days of the sale of the relinquished property, and the acquisition must be completed within 180 days.
  5. A qualified intermediary must be used to facilitate the exchange and hold the funds from the sale of the relinquished property until they are used to acquire the replacement property.

It’s important to note that there are other more complex rules that may apply, so it’s recommended that investors work with a qualified tax professional or attorney to ensure compliance with all regulations.