BENEFITS OF SECTION 1031 TAX-DEFERRED EXCHANGES

• INCREASE NET WORTH-REPLACE PROPETIES THAT HAVE MAXIMIZED THEIR GROWTH POTENTIAL WITH THOSE THAT ARE GROWING.
• INCREASE CASH FLOW-SELL AND INVESTMENT IN NON-PRODUCTIVE BARE LAND WITH NOTAX AND BUY A CASH-FLOW RICH COMMERCIAL PROPERTY. OR, SELL A NON-PRODUCTIVE PROPERTY WITH NO TAX AND BUY BARE LAND AND CONSTRUCT COMMERCIAL OR RESIDENTIAL INCOME PROPERTY ON IT.
• CONSOLIDATE HOLDINGS TO EASE MANAGEMENT BURDENS-SELL MULTIPLE PROPERTIES WITH NO TAX AND USE THE PROCEEDS TO BUY A SINGLE PROPERTY.
• DIVERSIFY RISK-SELL A SINGLE, LARGE ONE-TENANT PROPERTY WITH NO TAX AND USE THE PROCEEDS TO BUY SEVERAL SMALLER PROPERTIES.
• SELL A SECOND HOME OR VACATION RESORT PROPERTY THAT'S NO LONGER NEEDED-IF PROPERLY DONE, A RESORT PROPERTY THAT IS NO LONGER USED CAN BE SOLD WITH NO TAX ON THE SALE

IDENTIFYING REPLACEMENT PROPERTY

THE THREE RULES GOVERNING IDENTIFICATION OF REPLACEMENT PROPERTY ARE AS FOLLOWS-

1)THREE-PROPERTY RULE: EXCHANGER CAN IDENTIFY ANY 3 PROPERTIES

2)TWO-HUNDRED PERCENT RULE: EXCANGER CAN INDENTIFY ANY NUMBER OF     PROPERTIES AS LONG AS THEIR AGGREGATE FAIR MARKET VALUE IS NO MORE THAN 200% OF THE GROSS SALE PRICE OF THE RELINQUISHED PROPERTY.

 3)NINETY-FIVE PERCENT RULE: THE EXCHANGER CAN IDENTIFY ANY NUMBER OF PROPERTIES, BUT THE TOTAL OF ALL PROPERTIES PURCHASED MUST EQUAL AT LEAST 95% OF THE FAIR MARKET VALUE OF ALL THE PROPERITES IDENTIFIED. 

THE VAST MAJORITY OF EXCHANGES USE THE THREE-PROPERTY RULE.