Types of 1031 Property Exchanges
The IRS Section 1031 tax code lists different types of 1031 property exchanges.
A Starker exchange is the most common form of property exchange. During a Starker exchange, the existing (relinquished) property is sold first and the replacement property is purchased after a period of time. Taxpayers engaging in deferred exchanges generally use exchange facilitators. Also called a deferred or delayed exchange.
Reverse Starker Exchange
During a reverse exchange, the new replacement property is bought before the existing (relinquished) property is sold.
This is the simplest type of property exchange, where the existing (relinquished) property and the new replacement property are sold and bought on the same day.
Personal Property Exchange
A personal property exchange allows for the exchange of investment property other than real estate. Under the IRS, personal property is considered like-kind property if it is exchanged for property that falls within either the same General Business Asset Class or the same Product Class.
A construction exchange allows the use of a portion of the proceeds from the sale of existing relinquished property to improve or build on the new replacement property. With a construction exchange, the improvement costs can be used to equalize the exchange. This is useful if the new replacement property is less valuable than the existing property that is sold.