1031 Exchange Simultaneous Closing: Pros and Cons

Published July 6, 2023

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A 1031 exchange is a popular way to build long-term wealth while deferring state and federal capital gains taxes. Investors and landlords can use a 1031 exchange to swap an investment property for another like-kind asset without triggering a taxable event—however, this process isn't always straightforward, which is what makes it intimidating for first-timers.You have to nail the deadlines, exchange rules, financial constraints, and more to get your 1031 exchange right. Get it wrong, and you might have to eat an expensive tax bill sooner than you'd like.A 1031 exchange simultaneous closing is one of the most basic types of 1031 exchanges, and it's typically the safest. Below, we'll walk you through everything you need to know about simultaneous exchanges to protect your investments and make the best decisions for your portfolio.However, our guidance isn't a substitute for trusted legal advice. Always work with professional accountants and attorneys before making investment decisions.

What is a 1031 exchange simultaneous closing?

A 1031 exchange simultaneous closing is when you sell your relinquished property and close on your replacement property at the same time (on the same day). They occur simultaneously.The simultaneous closing has this designation to distinguish it from the other types of basic 1031 exchanges:

Delayed exchange: When you close on your replacement property after selling your relinquished property. Your replacement property must be identified in a 45-day window, and you have a total of 180 days to close on it for it to qualify for a 1031 exchange.
Reverse exchange: When you close on your replacement property before selling your relinquished property. You have 45 days to identify the property you'll sell and 180 days to complete the closing on your relinquished property.

You'll usually use a Qualified Intermediary (QI) to safely hold your proceeds and titles to perform a 1031 exchange correctly. Another option is to perform a swap with another party. If someone wants to trade investment property with you (and it qualifies as a like-kind asset), you could exchange deeds and still qualify for a simultaneous closing.

Pros and cons of a 1031 exchange simultaneous closing

So, why would you want to use a simultaneous exchange rather than a delayed or reverse exchange? Each method has its own pros and cons that make it the better option in different circumstances. Here are the advantages and disadvantages to consider with a 1031 exchange simultaneous closing.

Pros of a simultaneous exchange

No deadlines: The 45-day and 180-day deadlines can be tricky to navigate when you need to quickly identify and close on a replacement property. When you perform a simultaneous closing, deadlines aren't an issue.
Guaranteed completion: If you can't find a like-kind property or fail to meet the deadlines, your 1031 exchange could fall through. When you do a simultaneous closing, you don't have to deal with deadlines and you already have found a qualifying property.
Clear expectations: From the get-go, you know what property you're selling and which you're buying. You also know if there will be a boot (from equity or debt) before the exchange, allowing you to plan accordingly.
Flexibility: Planning on a simultaneous exchange gives you a bit of wiggle room if things fall through. If you fail to sell your property or close on a replacement property, you can then seamlessly fall back on a delayed exchange or reverse exchange.

Cons of a simultaneous exchange

Timing difficulty: Lining up selling and buying dates to align isn't easy. You have to navigate multiple schedules: the buyer, the seller, and yours.
Limited options: A simultaneous exchange might make you miss out on other opportunities. When you have 45 days to identify your replacement property options and 180 days to close, you have more wiggle room for searching and negotiation.

Exchange your property for something more passive

You can continue 1031 exchanging your properties, but that doesn't remove your landlord responsibilities. How about building your long-term wealth without all the hassles of traditional property ownership?Instead of using a 1031 exchange to swap investment properties, use a 721 exchange to trade your rental property for shares in our portfolio of homes. You'll get:

Tax deferment
Steady income
Upside potential
Diversification
Liquidity

You get all of that while also eliminating your day-to-day landlord duties—no more marketing your properties, cleaning, repairing, maintaining, collecting rent, or dealing with tenants. Sit back, relax, and let your real estate investments grow passively.Ready to get started? See what your property could be worth with a free, no-obligation offer. Just enter your property's address here, and we'll get back to you in 24 hours with your personalized offer.

Landlords, retire and minimize taxes.

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