Exchange Basics

The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.

Exchange Basics

In 1991, when I first provided a 1031 exchange for a replacement property, the deal was a $12 million all-cash transaction. In 1999, after 20-plus years in commercial real estate, I embraced the fledgling TIC exchange market and never looked back. After the 2008 financial debacle, I transitioned to the DST. My clients are coast to coast and north to south, all over the country.

A 1031 exchange is when an owner of a business or investment property exchanges that property must for other like-kind property. That property can be held in a trade or business, or exchanged for investment purposes within a statutorily mandated period of time. A 1031 process defers current recognition of gain applicable to the tax basis of the sale property to the replacement property.

There are many basics in a 1031 exchange, and most of them create questions – for example, what constitutes a complete exchange, and what are its components? We think about the “concept of equal or greater,” the role of cash versus debt in calculations for a complete exchange, and items like deductible expense. In addition, there are the “carved in stone” exchange time requirements and the use of what is customary when lacking hard definitions. Here is an overview with specifics discussed in other sections.

Question 1:
We have a contract on our fully depreciated duplex. What do we need to do to qualify for a 1031. The selling price is $240,000


  • 1. Hire a Qualified Intermediary.
  • 2. Do not go to settlement without the QI’s papers at settlement.
  • 3. Identify like-kind property or properties within 45 days, and close within 180 days.
  • 4. invest all of the $240,000 in a new property, or two or three new properties.
  • 5. You can add debt and/or cash

You can add debt and/or cash.

Question 2:
Marilee. Party A sells prop.1 to Party B for $2.4M. Party A also sells another prop. for $1.5M net. Party B owns prop. X worth $4.8M with $2.4M assumable debt. Can Party A exchange those 2 properties for prop.X -Pay down $1.5M towards the $2.4M plus cash to pay debt entire debt and qualify? Thank you

I think I understand the math – If the two sales by Party A ($3.9M) are all cash, then YES, Party A can purchase the property X worth $4.8M, use her cash to pay down the debt to $900,000, and qualify. The rules are that you cannot take any cash out of an exchange. You can substitute cash for debt. You can add debt to your exchange. You need to buy equal or greater ($4.8M is greater than $3.9M.) This qualifies every day.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Marilee Hill has been working with securitized 1031 exchanges for years. She entered the market in 1999 after getting significant experience in land sales, office and retail sales and leasing. She has held real estate broker licenses in multiple territories – and understands the process of property management, as well as the financial side of the business.

Beyond this, Marilee also bases her business in the idea that real estate is also a “people business” – she knows the sponsors and their histories; and knows that customers respect knowledge and transparency. Marilee believes, “My clients success is my success” and that has brought her a high degree of success in getting clients and shepherding deals through to completion.

Talk to Marilee Hill about your next 1031 exchange deal.

1031 Exchange